Discovered the source of my problem - I had installed a "skinit" cover on my phone. They provide a graphic cover for both the front and back of the phone - both static sticker type with graphics of your choice. The front comes in two pieces - one both the top and bottom of the screen. The top section has three holes - one for the front camera, one for the ear piece, and a third that I could not determine what it was for. I initially left it in because it looked better for my graphic. Turns out that's where the proximity sensor is. I removed it and now the sensor is working fine. Not really sure if the resets fixes I tried had any impact at all. I would say that any covering over the proximity sensor - including a plastic screen protector - would block the sensor and cause the issue. I don't recall having this issue ever with my 3G and I had a screen protector on it about 90% of the two years I used it. Seems like the Apple engineers have made some pretty big mistake on the technical design of this version of the phone. I still love the better features and performance but wish it was a cleaner implementation.
Thanks,
GG