If you delete your SMS on an iPhone with OS 3.0, chances that this deleted SMS will stay with you for a while (not sure how long). The issue identified is actually a bug on iPhone OS 3.0. As you may know, iPhone latest OS has a search function. If you have deleted an SMS, and you happened to remember the subject, chances is that you can find that message.
At the moment, no one knows if this problem will be fixed in later version of iPhone OS. So, in the meantime, remember that if you deleted a message, it is still inside the cache somewhere. Watch this video and you can guess that your privacy is not that private anymore.
(source)