IOS 4.2.1 iPhone 3G - battery drain / indicator problem

Since past few days this iPhone has started behaving strangely. Battery indicator will show as low (red bar) even when it's been on charge. Power off and on and it will show full but then over course of about 15 minutes the indicator will drop down to below 20% (get the 20% warning dialog) then it seems to settle at just below that mark. power off and on and remains indicating low battery.
Don't know how long it will last with that battery level as I am not the user of the phone.
Not yet done a full reset / restore, this will be the next thing to try.
Anyone know what might be causing this? Does it suggest that the battey is dying?

You might try calibrating the meter by draining the battery down until the phone shuts off, then recharging fully. It should calibrate after two cycles. When you plug the phone in it might take a few minutes for the phone to come back on.
Or, the battery could be getting weak or the charging circuit could be getting bad.

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