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I think so. My cousin took in his iPod and got 10% off. The iPod wouldn't hold a charge, like at all. Wouldn't that be considered "broken?"
 
I just bought a Nano. Took my old unit and got 10 % off. The battery in my old unit was dying. I think they strip down the old unit and recycle the usable parts [ if any ]
 
They don't really care, I think it helps generate a "greener" image by enticing people to recycle old iPods. As long as the exterior isn't smashed to bits they take them, I traded in an old 4g iPod with a broken hard drive and dead battery as well as obvious scuff marks from where I'd opened the thing, still got the 10%.
 
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