It happened to my 3GS a month ago. Bought new 4s' for us and gave kids the 3GS to use like an Ipod Touch. They were being used and cycled, so they didn't just sit around.
The fact is, batteries have a finite life. They can only charge and recharge so often. I get that. If the battery had just died, for $12 I could have a perfect phone again.
This expansion has ruined an otherwise perfect phone that was always cased and always had a screen protector on it. My son was going to trade it in to get an Ipod Touch, but now it is worthless.
Batteries are not supposed to act in this manner. If they are, they should come with a warning to replace them before they do.
I am going to an Apple store today to see what they will do. If they fail to react responsibly, this will look really bad for them.