Date & Time Set Automatically locate me in China!

I upgraded my iTouch 4G to iOs 5 the other day. A couple of days later, in the middle of the night, the time zone switched to Shanghai and I missed my doctor's appointment because the iPod thought I was in China. Now, I live in Reykjavík, Iceland, nowhere near China. What the heck has happened? I switched 'Set Automatically" off and set it to Reykjavík and it works fine. Still, when I use the Facebook app my location is Shenyang, Liaoning, China!
Is this an iOs 5 glitch or what the heck is going on? I've tried it over a different wifi and it's the same thing.

I am currently in Winnipeg, Manitoba. Current timezone is UTC/GMT -5 (CDT - Central Daylight Time).
When date & time is set to automatic, the time in the status bar is incorrect for Winnipeg by -1 hr. All the times in the World Clock are correct (including the display for Winnipeg).
I recall an issue I had when using Bootcamp on my Macbook. The Macbook records system time (and all time stamps) in UTC/GMT but displays the correct time once you specify the timezone offset. This caused problems when booting back and forth with Windows because Windows assumed the system clock was set to the local time (I now use VMWare Fusion). This issue was well documented on the Apple site.
I'm assuming the iPhone behaves similar to my Macbook and Mac OS and expects the system time to be set as UTC/GMT. The behaviour I'm experiencing suggests the UTC/GMT time is actually being set correctly on the iPhone (otherwise, the world clocks wouldn't display the correct time) but the timezone offset is incorrect for Winnipeg (which determines how it's displayed in the status bar).
I did some significant troubleshooting last night and gathered some data to further explain the problem. However, I fear that if I post it publicly the thread may be deleted.

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