With the new iPhone version 4.2 Apple has made the Find My Phone feature of MobilMe free. If you have the old ID style login and not an email address you will have trouble logging in. The fix below worked for me. I found it here on the Apple forums.

Easy Fix that worked for me that you can try:

Follow these steps:

1. Visit http://store.apple.com/us. Login using your normal iTunes login
3. Click on the “Account” link next to the shopping cart basket
4. Now Click Account information
5. Next view Apple ID field and complete it with your normal iTunes Apple ID email that you always use example joesmith@yahoo.com
6. Check that all info and password fields are completed and click continue.

Apple will now verify your account. You can now go back to your phone settings menu and follow the steps here http://www.apple.com/iphone/find-my-iphone-setup/
Again, I hope this helps a lot of folks and it amazes me still how there is no official response regarding this setup issue although they left a small unclear hint on that setup page…

If you have an iTunes Store account or have ordered from the Apple Online Store, you already have an Apple ID.

So, you don’t need to create new accounts, you just need to edit your existing one through the Apple online store to reflect your full email address.

Also you will need to update your App Store login to match your updated settings or else you will get a wrong password message.

1. Goto Settings and chose “Store” from the menu
2. Sign Out of Store
3. Now log back in using the full email instead of just user id