The New York Times broke the news earlier today, and reported that Senior VP of Macintosh Hardware Engineering Bob Mansfield has taken over Papermaster's duties. Mansfield also worked closely with the iPhone 4's hardware — specifically the device's retina display, touch screen and A4 microprocessor.
Since Apple and Papermaster have declined to explain the departure, we don't know whether he left of his own accord, was fired, or some gray area in between. However, renowned Apple insider John Gruber wrote on his blog Daring Fireball today: "From what I’ve heard, it’s clear he was canned." Gruber notes that Papermaster was not in attendance at Apple's damage control press conference (the one at which Steve Jobs announced free iPhone cases), but Mansfield was.
Gruber also says that for weeks Papermaster has been known as "the guy responsible for the antenna" within Apple. Ouch.