Via mac blog The Loop:
The Loop has confirmed that if your iPhone has a broken screen and you take it to an Apple retail relocation, they have the capability to fix it on the spot. The machine (think big suction cup), which is located out of customer view in the back of the store, reportedly separates the iPhone from the screen, allowing a new one to be installed.
The repair will cost you $200, as accidental damage is not covered under warranty. If you don’t want to pony up that much cash, your other choices are to upgrade to the iPhone 3GS (will probably cost you even more), ship it off to a third-party like iPodJuice.com ($100), or do it yourself ($80).
Links:
The Loop: “Apple retail stores can now replace broken iPhone screens”
iPodJuice.com: Outer Glass and Digitizer For Apple’s iPhone 3G $99.99
TidBITS: “How to Replace a Cracked iPhone 3G Screen”