Police are allowed to search your pockets during an arrest, as this is part of standard procedure to make sure you don't have any weapons.
Police are allowed to use the contents of your pockets, weapons or no, as evidence.
Past cases have said that this includes the full contents of a cellphone.
Regarding passwords, this denies them access to your phone through your phone (for some password software). You need to verify whether it prevents them from rooting around through files anyway.
Regardless as to the above, you might consider it worthwhile to password protect AND encrypt the contents of your phone. Recent rulings state that they need to know specifically the incriminating content they are looking for to force you to hand over the keys. If they're just fishing, these locks will hold.
I agree with this court's ruling as it does try to limit the exposure of the smartphone data to similar real-life situations without a carte-blanche dictate that they have absolute access.