Some researchers recently demonstrated what may be a design flaw in Android that would allow malware to mimic legitimate apps. Sean Schulte, SSL developer at Trustwave, and Nicholas Percoco, the senior vice president and head of SpiderLabs at Trustwave, revealed at a DefCon Hacking Convention, what they believe is a design flaw in Android. They indicated that the design flaw could be used by advertisers to bring annoying pop-up ads to phones, or even by criminals to steal data via phishing.

Basically the exploitable flaw centers around the fact that Android allows a developer to override the standard for hitting the back buttons. Because of this, an app can be created that is able to steal the focus and keep you from being able to hit the back button to exit out. This is similar to some malware attacks on Windows based computers. They are calling it the "Focus Stealing Vulnerability", and they were able to demonstrate an app they created that did exactly what they described. Here's a quote from the CNET article with more details,
The researchers have created a proof-of-concept tool that is a game but also triggers fake displays for Facebook, Amazon, Google Voice, and the Google e-mail client. The tool installs itself as part of a payload inside a legitimate app and registers as a service so it comes back up after the phone reboots, Percoco said.

In a demo showing a user opening up the app and seeing the log-in screen for Facebook, the only indication that something odd has happened is a screen blip so quick many users wouldn't notice. The fake screen completely replaces the legitimate one, so a user wouldn't be able to tell that anything is out of place.

With this design flaw, game or app developers can create targeted pop-up ads, Percoco said. The ads could be merely annoying, like most pop-ups are, but they could also be targeted to pop up an ad when a competitor's app is being used, he added.
The worst part about this potential vulnerability is that it could do more than just create a replacement pop-up ad; it could also detect when you are using a banking or email app, and create a legitimate looking overlay "phishing" for your credentials. Afterwards, the user would never even realize what happened. Supposedly,
The malware could even install itself as a service and run seamlessly in the background even after the phone is rebooted.
Google is looking into the issue, and for now, no malware infections for this exploit have been reported. In the meantime, the best thing you can do is to always be cautious about where you get your apps, and don't download anything that looks even remotely suspicious.

Source: via PhoneArena and CNET