Okay, that's worse news. If you have water damage, then what Applejuiced wrote is the cost (i.e., ~$200). You can try to look at the water sensors to see if they are pink or red. You really can't see them with the naked eye though. The Genius has a little magnifying/light tool that they shine to see them better. One is in the head phone jack. Another is in the middle towards the back of the iPhone in the Dock Connectors. Two others are inside the iPhone. If they don't see water damage outside, they won't check inside. Don't say anything about possibly getting water damage though. Anyway, you can try to see if you have water damage. If you don't then you get to pay the lower price.
BTW, if you have only had it for two months, the battery will be free. But you said it is a 1st Gen, so I'm confused. If you got a refurb from Apple, you still get a year warranty.
I just reread all your posts. This is an iPod Touch? If so, water damage is $99. IDK what the battery costs, since I can't find the link for the $99 cost, but I know it is that.
No no no... I paid for the update for an iPod, unrelated to this, this is an iPhone 3G, 2 months past warranty. I'll try see if the water sensors tripped
Edit: they havent