MSNBC has this article, as well as how hints on how to stop it from happening.

Here are a couple of airport scenarios that most air travelers will recognize:

* You go through security and in your carry-on luggage, the baggage screener finds a pocket knife, four ounces of shampoo, a cigarette lighter or some other item that is not permitted aboard the airplane. You have already spent a frustrating hour in line, so you decide to let the agent just take the prohibited item away.
* You buy a bottle of Scotch whiskey or French perfume at the duty-free shop abroad, but when you land in the U.S., you have to go through security for your connecting flight home. That's when you discover you can't take the whiskey or perfume onboard the airplane. Sadly, you wave your lovely stuff goodbye.

Annoying? Yes. But puzzling, too. I mean, where does all that contraband go? The Transportation Security Administration (TSA) must confiscate thousands of prohibited items every day. Do the agents get to keep the stuff? Do they sell it? Give it charity? Throw it away? I once counted 12 bottles of booze and nine oversized parcels of expensive aftershave and perfume at a security checkpoint all confiscated from an international flight. I imagined the nice-smelling party that was going to happen at the end of the shift.

Not so far-fetched, maybe. I have a gate agent friend who once was in charge of quizzing passengers about prohibited possessions before they boarded the aircraft. Almost everyone who had a lighter chose to relinquish it rather than take the time to send it home. My friend now has a collection of more than 600 lighters, ranging from the average Bic to some intricate and bizarre models. Ironically, my friend doesn't smoke but what a collection.

Here are some tips for dealing with prohibited items.

1. Know the rules
Go to the TSA Web site to find out the latest on what can and cannot be carried in your carry-on luggage. Rules change quite often, so check it on a regular basis.

2. Ship it home
If you cannot take an item on board, you can always send it home. Most airports have vendors near the security checkpoint that sell mailing materials in different sizes and shapes, and the TSA is rolling out self-serve mailing kiosks in airports around the country.

3. Check it
If you buy a duty-free item abroad or on the airplane and you have to connect at an airport in the United States, you will have to take your luggage through customs. When you recheck your bags for your connecting flight, put any liquids or other prohibited items in your checked luggage because your next stop is the security checkpoint, and that's where your items will be confiscated.

4. Make inquiries
If you are unsure whether your purchase will be permitted in your carry-on luggage for the duration of your flight (including your U.S. connecting flights), ask the clerk at the duty-free shop or ask a flight attendant. They have come across your situation many times before.

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uhm.. my cousin came b ack from malaysia through sydney to brisbane...they were told they could buy stuff in malaysia duty free and take it through to brisbane, but at sydney they had to take all their hand luggage of the plane, and they were not allowed to bring the stuff they brought back onto the plane- obviously they were very pissed off and made a noise. the airport people told them to seek compensation from the airplane (12 of them who went crazy on cosmetics and perfumes, had quite a bit worth of stuff) and so after the items were taken away, they asked to see them again to note what had been bought0 but customs couldnt find any of it. 2 hours later it was located in a black plastic bag with other stuff underneath a counter somewhere behind a cabinet- obviously somebody's stash they wanted to take home as there were bins for those items to go into. there was aroudn 2 grand worth of stuff my cousins had confiscated- so they proceeded to empty alllll the contents of every moisturiser, cleanser, toner, foundation, perfume. whatever couldnt be emptied was smashed, and they took the bottles back to claim the compensation from the airline.
moral of the story- dont take connecting domestic flights ;)

Thanks for the tip.

why would they claim empty all of it and smash it, if they got it back :S or did they get more money?