IPhone :: Cannot Hear Or Be Heard When Making Call

A few days ago, out of the blue, I lost the ability to be able to hear or be heard when on a call on my iPhone 4. On a call, no matter which output I use, earpiece, earphones or speaker, I cannot hear the person on the other end speaking, and they cannot hear me talking. My phone will ring if someone is calling, and if I call someone their phone will connect, but from there I am completely muted/in silence. I do not believe this is a hardware related issue as I have tested both the microphone and speaker/s by making a Skype call to a friend which worked absolutely fine. I can also play music from my phone successfully through all of the iPhone outputs mentioned above. This is a super frustrating issue as I haven't dropped the phone or damaged any of the hardware. The only one software related thing I notice that is out of the ordinary is that when I do make a call, the 'speaker' icon is selected by default. Obviously I have attempted to deselect it, but have had no success in this making any difference.

Info:
iPhone 4, iOS 5.1.1