I was in same situation as you, dropped my iPhone on asphalt and cracked screen just two weeks before lunch of 3G.
I didnt have intention to upgrade but after talking to two people that work at apple store I decided to upgrade.
They were telling me save money and get new one, which made sense. Two days after lunch of 3G I found stock at Buffalo NY store and
decided to get new one. I took my old phone with me and after purchase I got my phone out and showed that to the sales person she was like they might not be able to fix it for you.. yada,yada,yada but she put me on the list to talk to genius.
After 40 minutes guy show up in front of me, now this guy was multitasking big time he had one iMac open other customer filing out some forms and me. I told him I dropped my iPhone and screen broke. He took iPhone with him in the back room and short time letter he comes back with white box, at this time I know that I would have to pay for it so I took my card out, he come back with paper work and says You know there is charge of $249 for replacement there wasnt any emotional drama since I kiss my money good buy on a way over to the store so I sad yes
Then he goes
BUT SINCE YOU DIDT TRY TO ******** ME THERE IS NO CHARGE so i got as new 16gb 2G iPhone repaired for Free.
I love Apple in store customer experience, you pay little bit more for there products but I get a smile on my face every time I exit that store