How the hell could water damage cause a broken mute switch anyways. The water damage indicator should only prevent repair if the fault could actually be caused by water damage, surely.
This is my thought as well. He's asking for a repair for a purely mechanical fault that would have nothing to do with whether there was any water damage to the device (which would cause a more electrical-based fault in usage of the device).
This sounds like a load of BS to me (from Apple's end) and a horrid method of customer service from Apple.
Thanks for the solidarity folks!
Apparently, the alleged "water damage" has nothing to do with the switch breaking off. The customer service rep I spoke with said that the first thing they do when they get a phone in is hook it up for a diagnostic. Once the diagnostic shows "water damage" they pack the phone back up and send it back to the owner. It doesn't matter that just my switch is broken and the phone works otherwise. Once they find a bigger problem (alleged), it takes precedence over the smaller issue.
Doesn't even sound like they looked at the switch.
Some people began breaking off the mute switch and using it to get a warranty exchange. This is the reason that Apple has started to deny the warrany replacement. It seems that "some" people got the idea that if they broke off the mute switch Apple would replace their liquid damaged iPhone even if the warranty was void.
Do a quick web search and you will see all the suggestions about how to get Apple to do a warranty exchange on a liquid damaged iPhone. All you have to do is break off the mute switch. So a few thousand bad

Dave