Yeah they won't be running out of minis until after your Applecare expires. It's extremely uncommon not to have a huge back stock of returned or leftover hardware, specifically for the purposes of repairs and warranty replacements. If they did somehow manage to run out, they would offer you a product that was closest to the value of your machine at that time. In other words, if you had a broken 800MHz G4 tower, you'd probably get a refurbed mini (or an offer for a $400 or so credit toward a more expensive system). They would not replace it based on the original purchase price. For an iPod mini, regardless of capacity, they best you'd get would be the 2GB nano.
Sort of like an insurance adjuster, if your 2001 car died, would offer you either another 2001 car of the same model or a payment for something else (perhaps a 2006 model). But you wouldn't get a 2006 model for free.