It appears that the iPhone DEV kit installs a TLS certificate into you keychain. As normally there are no TLS certs in there when 802.11x Auto sets up it will not enable TLS however if there is a TLS cert then TLS will be enabled and set to the first Auth check in 802.11x.
This will stop you logging into the wireless network. Just turn of TLS in the 802.11x config screen and all is well and PEAP works first time.