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Just had the same problem, you have to return the phone for a replacement.
Under settings /call you will see additional settings there then check noise surpression it should get rid of the echo. But beware when you use a hands free bluetooth the setting gets un checked upou have to recheck it
I bought this phone after doing extensive online research for a rugged phone. Seems some have this echo issue while others claims it's great. I've had the phone for 3 weeks now and I hate the call quality! A phone should be a phone first! My first 3 calls were met with "what in the world is that echo"! As an audio communication device it is a fail. I'm trying to find apps or ways to improve the call quality, but am coming up empty handed and I am too much of a newbie to root and do a different ROM. Any suggestions folks? I've tried the noise suppression setting off and on during same call, doesn't seem to help. I also deleted the cache for logs I believe in recovery mode, as I read it may help. It didn't.... I use a StraightTalk AT&T SIM. I'm disappointed and could use some solid advice.... If rooting can be proven to solve this issue I'd be willing to try it.. I think MotorHead was talking about version 9 addressing this exact issue... Help... I'm sad.. In retrospect I feel like I should have just ponied up for the Sony Xperia Acro S and been done with it.... Thanks in advance and have a great day!

I took care of some of this in my Cyanogenmod 9 build under the Phone App -> Settings -> Noise Suppression. If you leave the checkbox off the echo seems to go away even if you flip between headset and bluetooth.
I noticed the stock ROM includes this set in Device Settings -> Call -> Additional Settings as you point out. Not sure on the full behavior of stock though. I used the echo problem as an excuse to get Cyanogen 9 going for the Rugby Smart.

is there a fix for this yet?