they should fix it, unless they see it as being you at fault (applecare doesnt cover accidental damage as far as I know).
And, AFAIK, im not sure if they can replace the key in the apple store, since the powerbook keys are not the snap off kind that normal keyboards are, they are basically stuck.
Best thing I can say is just call your local apple store and ask them what to do about a broken powerbook key.