Currently Being ModeratedMay 16, 2012 3:03 PM (in response to wilhil)
First step is to stay well away from the phone. Second step is to verify injury with a doctor. Third step is to call Apple, explain the situation to them (pretty much exactly as you have here).
You won't be able to prevent the expansion of the phone, but you should be able to get compensation from Apple of some sort due to injury caused by the device
Currently Being ModeratedMay 16, 2012 5:43 PM (in response to wilhil)
Get it out of your house. There is nothing you can do to stop the chemical reaction that is making the battery expand and it may pose a fire hazard. Make an appointment at the genius bar and take it in to see what they say.
The vast majority of expanding or exploding batteries can be traced to either liquid damage or faulty repairs. If it is under warranty, Apple will replace it. If not, they will probably offer you an out of warranty replacement. Without knowing the history of the phone in detail, it's impossible to say what the root cause was.