Information on iPhone Water Damage?

I have had my iPhone 3G for about 8 months now, and today my 2 year old brother dropped the phone in a glass of water when I wasn't looking. I'm not sure how long it was sitting there, but about an inch or so of the lower part of the iPhone (where the USB connector, mic, and speaker are located) was completely submerged. I am now getting a message saying that the iPhone is plugged into some device, and I am unable to navigate back to the home screen anymore. After I found that it wasn't functioning properly anymore, I immediately powered it off, and am leaving it for a couple of days in hopes that it will return to normal functionality once it has dried completely.
My question here is, if this results in permanent water damage, what can I do to replace my iPhone? It was a gift to me, and I certainly can't afford to buy a new one for $500 or whatever the price is now. Are there any options for me to replace the iPhone outside of going and buying a new one? I'm really freaking out about this, I cant go without a phone for too long, so any advice on this issue would be greatly appreciated. Thanks for your time.
-Tyler

See this:
http://support.apple.com/kb/HT3302
You should be eligible for an Out of Warranty replacement, at a cost of $199.

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    <Edited by Host>

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