I recently took advantage of an in-store offer to replace my water-damaged 16GB iPhone 3G with a 8GB version for $199 with no contract extensions, just paid the money and walked out with it. And in my case I got to keep the old one, which makes a great WiFi-enabled MP3 player.

Apparently (according to reports) it's now official policy/program now for Apple stores to allow problematic iPhones where the water damage sensors (there are four of them) have been "tripped" (discolored do to extended water exposure) to be replaced with the same size and model for $199. That's a great move for people like me who do things like ski, boat and oh, I dunno... Live in the freakin' rain.

So, if you have a problematic iPhone that you have been told is not covered under warranty, you might be able to take advantage of this policy.

More info here.