Yeah, the auto-correct is off on mine now too, though I don't have any colorful anecdotes to support why.
I just don't get why, with all the other nice user interface elements, the auto-correct seems implemented in the most counterintuitive fashion. When it pops up its suggestion, what is the "NO NO NO" gesture? Tap anywhere, and it says, "Great! Here's that word I thought you wanted, inserted neatly over where you were trying to put that other word in!" It's like they kept the one thing that worked the worst in Newton technology for this.