Question : Problem: iPhone 3G keeps dropping data network.

My iPhone inconsistently maintains its connection to the data network, as it will no have a 3G or E next to the signal strength indicator in the upper left-hand corner of the screen, even though I am in areas where I know there should be connectivity.

Is there a high likelihood that this is a hardware issue or software?

Answer : Problem: iPhone 3G keeps dropping data network.

I would try turning off 3g. Settings > Network i believe.

See if that does anything.