Yes they do swap a damaged phone for a refurb one . I paid £129 when my iPhone 4 became a flotation device in the bath with DS . I just took the soggy knackered phone in and they relieved me of some cash then handed me a new phone .
Dd had hairspray in her bag which leaked into her phone... I have heard you can pay for refurbished replacement from apple store for about £150. Is that a given or is it only in certain cases? And do they replace like for like - 3 gs for 3GS etc