Absolutely. This is a human psychology problem, not an engineering problem. They designed the phone knowing that it suffered more attenuation than other phones, but it also dealt with highly-attenuated signals better than previous iPhones. Overall reception is the same or better, all things considered.

What killed them was the way the reception bars dramatically plunged toward zero within seconds of bridging the antennas. If the iPhone 4 had shipped with the bar distribution formula in 4.0.1 and used the same level of hysteresis as other phones, no one would have noticed the drop and everyone would have happily gone on using their iPhone 4's oblivious to the attenuation.

That means they knew something, but not necessarily about the "bridging the gap" problem.