Crack in the screen
Dropping your phone into the toilet is fairly improbable (if it isn't, then keep that information to yourself). Dropping your phone on the sidewalk? Much more plausible. If you're lucky, a few scuffs and scratches are what you'll have to live with. But what happens if you crack the screen?
You can certainly send your iPhone over to Apple for repair. Dropping the phone is not covered under warranty, however, and you will end up paying several hundred dollars to have your phone fixed. Sometimes, that's all you can do (or buy another new phone). If you have a 2G iPhone, you can go to DirectFix and purchase a replacement screen. They even supply a video to help do the repair yourself: