Ipod Nano Catches fire?

I bought an ipod 3 days before Christmas for my fiance and today when he turned it on, the screen went pitch black and it smelled and felt as if it were on fire. Who would I contact about this problem? And has anyone else had this happen? I have over $800 wrapped up in my ipod, did I just lose all of my money?

The warranty still covers the cost of the repair or replacement for a whole year, just not the shipping.
Personally, given the choice between $30 for shipping under the standard warranty, or $60 for Applecare (which will void the shipping charges, AND extend the warranty an additional year), I'd take the Applecare coverage.
Cheers!
-Bryan

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