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Apple's policy on water damage is clear. If an iPod or iPhone has been in contact with a liquid, the repair for this type of water damage is not covered by the Apple 1 Year Warranty or even the Apple Care protection Plan.
Any iPod's or iPhone that were built after 2006 have a built in water damage indicator which shows whether a liquid has indeed been in contact with the device.
If there has been water damage in a phone, it is possible to repair it and eliminate the water using simple, step-by-step methods that have been proven to work.
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