According to Engadget, this device was found on the floor of a San Jose bar inside of an iPhone 3G case. It's reported to have a front facing camera, 80GB of storage and doesn't turn on but it did at some point. The picture on the right is from the lucky person who found the device in a bar (crazy, we know) and the ones on the left are from TUDream who says he found them on a Chinese forum.
We've seen plenty of fake iPhones so we're not getting too excited just yet but this device is interesting. The lack of bezel, completely glass front and all-metal sides is something we could see Apple doing. We've also heard several rumours of a forward facing camera and the flat design might make it look less chunky than if it were curved. Of course, this could be a very good fake and we sort of hope it is - it's not exactly beautiful.
Update: Earlier today Applesfera posted a picture from a reader who said that the above device is a Chinese or Japanese clone. Now Engadget claims that it isn't a clone at all. Engadget compared the 'bar iPhone 4G' photos with an old photo of a prototype iPad - which turned out to be the real thing - and they spotted the 'iPhone 4G' in the top right corner (as you can see below). It's a bit blurry but it's the same phone.