Wirelessly posted (Mozilla/5.0 (iPhone; U; CPU iPhone OS 3_1_3 like Mac OS X; en-us) AppleWebKit/528.18 (KHTML, like Gecko) Version/4.0 Mobile/7E18 Safari/528.16)
Personally, I've never had to purchase extra protection. I dropped my first generation iPhone in milk. It messed up a couple of months later, & Apple replaced it no problem. That phone messed up again, & Apple replaced it no problem. They never gave me any problems about wanting it fixed
My 3G S was dropped in a bucket of water, sprayed with mountain dew, & dropped several times. It doesn't have any scratches/cracks, & the only thing wrong is the accept/deny buttons on the call screen. Accept appears on the right instead of left side. Hah.
I definitely don't think extra coverage is needed, because Apple has been more than great about replacing my phone if something goes wrong.