Version 1.2.1 offered improve auto-level algorithms to help compensate for the 'automotive grade' gyro sensors drift. Make sure you level the attitude indicator both on the ground and in flight (by tapping the center of the Attitude Indicator) because the leveling algorithm expects the plane to be in level flight most of the time.
Version 1.2.2 adds support for the iPhone 3GS by deriving attitude information from the GPS. The attitude readout is refreshed at a rate of about once every second (the GPS update frequency) and assumes a coordinate turn. In other words, the GPS-derived attitude information is usually sufficient for normal flight, but won't cut it when you're doing acrobatics.