The problem here is that the iPhone still has (or, had) current running through it. It's probably toast.
I tanked, literally (dropped it off a towel into the toilet) my powered-on Razr and while the battery electronics died (so the phone would no longer charge it as it didn't believe it was a Motorola battery), it did eventually work fine once it dried out (took about two days and it was flaky in the meantime).
Still didn't stop me from using it as an excuse to get my iPhone.
As to the water sensor, that is a really dumb place to put it. I use my iPhone in light drizzles (I live in Seattle, after all), but now I have to worry about a few errant raindrops landing in my headphone jack and activating the sensor...