So, much like the OP, my wife (yes, carelessly) dropped her new caseless bumperless iphone4 today in our garage and the glass in the lower left corner of the back side shattered. The phone still worked and the front side was damage free. After a moment or two of panic I called apple and they directed me to the apple store for a genius bar appt which I quickly departed for mentally preparing myself to pay at least the original $199 and possibly more.
At the store, the understanding and genuinely concerned blue shirted young man listened to my very brief story, which consisted only of "my wife dropped this phone, the glass is cracked, I would like to know what my options are," and quickly took the shattered phone to the back to see what he could do for me. 3 minutes later he returns with the news that they will replace the phone with a brand new one at no cost to me whatsoever. He said something like, "normally you would have to pay for a replacement, but because this phone is brand new and you have only had it a week we will replace it free of charge."
Just like that I get the new phone, have it activated, and (after grabbing two bumpers) am on my way. I never had to get all riled up, demand this or that, wrangle with him, make excuses, drag out the manager, etc. none of which I was really prepared to do btw.
He did say that they have seen 4-5 cases like mine in the past week. I wonder if there is some sort of early replacement period I am fortunate enough to be a part of or if replacement policy varies from store to store. Had it been another couple of weeks from now I bet the outcome would have been different.