Source: http://gizmodo.com/5901691/psa-fake-angry-birds-space-android-app-is-full-of-malware
in the Android Market available on Android phones that infests your phone with malware.
According to Sophos, a digital security firm, the malware hides its "payload" deep inside two .JPEG files. Once installed, it downloads additional malware to your phone, and enlists your phone as part of a botnet. From there, your phone can be used as muscle for any number of hacker ops.
The easy way to avoid getting nailed by fake app malware is to always be sure to check the developer on any app you download. If you've already downloaded Angry Birds Space, take a second to make sure that you've got the right one, and if not, consider securely wiping your phone once you've backed up important data.
Malware happens, but erm, isn't this one that Google's Android Market Bouncer really should have caught? [Business Insider via All Things D]
Update: We originally posted that the fake app was available through the Android Market. That's incorrect. It is only available through third party stores, so if you go through official Android channels for your apps, you shouldn't have any problems.