Wayne Sheffield discusses phantom reads:
Run both code scripts again (Code Script 1 first, and Code Script 2 within 10 seconds). This time, you will see that Code Script 2 completes immediately without being blocked, and when Code Script 1 finishes, it has spawned additional data in its result set. A phantom read in action.
If you want to hide from phantom reads completely, then you’ll need to use either the serializable or snapshot transaction isolation levels. Both of these have the same concurrency effects: No dirty reads, non-repeatable reads, or phantom reads. The difference is in how they are implemented: the serializable transaction isolation level will block all other transactions affecting this data, while the snapshot isolation level utilizes row versions to create connection-specific versions of the table for the transaction – all of these row versions will cause increased activity in the tempdb database. Let’s take a look at how the snapshot isolation level will eradicate the phantom reads. First off, we need to modify the database to accept this isolation level.
After reading Wayne’s post, if you want a more academic (i.e., less fun) read, you can also go back to the Microsoft Research isolation levels paper, which describes most of the isolation levels we have in place today for SQL Server.