Good point, Dave. Previously, Kryssa stated that Apple changed their policy on this. Was it always like that for iPods? This differs from iPhones - the equivalent text there states, +"If Apple determines that an iPhone is not repairable, for example, if it has failed due to _liquid damage_ or catastrophic damage where the iPhone has been disassembled into multiple pieces then Out-of-Warranty Service is not available and the iPhone will be returned."+
Actually, I'm a bit confused, since the same section of the iPod service FAQ states, +"If Apple determines that an iPod is not repairable, for example, if it has failed due catastrophic damage or the iPod has been disassembled into multiple pieces, then Out-of-Warranty Service is not available and the iPod will be returned."+
What confuses me is that for the iPhone, Apple states 'catastrophic damage where the iPhone has been disassembled into multiple pieces' suggesting that catastrophic damage = disassembly, but on the iPod page, there's an 'or' in that clause.
Bottom line, as you say only Apple can make that determination. It's clear that liquid damage means no warranty coverage for either device, clear (from the text above and the iPhone forums) liquid damage to an iPhone means no Out-of-Warranty service, but
perhaps for an iPod Touch they'll replace it for the appropriate fee.
If so, apologies to Troy - and if you're still watching your thread, try calling Apple or visiting an Apple Store to see what they'll do. It would certainly be cheaper than buying a new iPod!