Battery life bad after ios5 upgrade on 3gs but genius bar states water damage, I'm not sure I buy it.

I had my iphone 3gs for exactly a year and it worked fine.  I upgraded to ios 5, and now the phone gets into a state where it won't charge even when plugged into the wall.  I do some different operations and then it works for a few days. 
I went to the genius store twice.  Once they thought it was just a software issue with ios5 and different charging mechanisms.  So, I went home happy thinking it was fixed.  It happened again.
I went back yesterday and the genius bar says there is water damage and it is affecting the battery.  I did see the red water damage line but I'm not sure I buy it.  I was working fine before ios5. It seems a bit coincidental to me.
Have any of you seen this problem before?  Is it truly the water damage that is the problem perhaps excacerbated by the ios5 increased battery depletion bugs?  Or could it indeed be some sort of software issue?
In addition, what options do I have now?

There are still battery issues with iOS 5 and another update is forthcoming. In the meantime do you have an Exchange mail account on your iPhone?
Your charging problem is almost certainly related to the water damage on your iPhone. You can do an out-of-warranty replacement for $149.

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