[wavezero]

Well, after a hard reset and a huge headache I found out what's causing this problem:

Windows Live!

If you have your email set up with check mail "As Items Arrive" then the ignore button on the incoming call screen will only mute ringer, not ignore. If you switch back to "Manual" the the ignore button will ignore.

Any ideas why this is?

I may try to dig out some other windows live builds and see what happens...