"Free phones (with contract)" is a bit like saying the house you bought was one fifth the list price (with a mortgage).

Perhaps we should only count phones that are sold for the full, unsubsidized price, to avoid giving an unreasonable edge to phones that sell for $200 with contract.

Does that information come from the same source that informed TechCrunch of the leak of information about U2 listeners?

The article in question is http://techcrunch.com/2011/07/26/androids-dirty-secret-shipp..., and the claim in question is "many return rates are approaching 40% said a person familiar with handset sales for multiple manufacturers." And that's exactly the amount of detail provided. Forgive me if I'm not bowled over.