Liquid Contact Indicator? iPhone 4 not restoring (error 1611)

My iPhone won't restore even though it is recognised by iTunes. After an initial 'restore attempt' process, I get the following error code (Error 1611).
I have taken the iPhone to a technical repair store and after a quick examination, I was told that the iPhone had suffered water exposure and was out of warranty. I explained that this could not be possible as the phone had not been in water, was well looked after and was in immaculate condition. He proceeded to explain that the Litmus Paper indicator at the base of the device had turned colour. I again explained that I had not exposed the iPhone to water and queried how the iPhone could be perfectly functional during the evening, not be exposed to water during the night, but was dead the next morning due to apparent damage from water?
After again explaining that the iPhone had not been exposed to water, I asked whether or not humidity could be a cause of water damage. He said yes, this was possible.
Has anyone else experienced this type of issue? What can be done about a 1611 error?

Try getting your phone in DFU mode. If this doesn't work, you most likely do have a hardware failure:
1. Close iTunes.
2. Connect your iPhone to your computer and then launch iTunes.
3. Turn your iPhone off (hold down the power button at the top of the iPhone).
4. Then, hold down the sleep/wake button and home button together for EXACTLY 10 SECONDS, then release the sleep/wake button.
5. Continue to hold down the Home button until a message appears in iTunes telling you an iPhone in recover mode has been detected. When you are in DFU mode your iPhone screen will be completely black. Remember that if you see the restore logo, iTunes logo, or any message on the iPhone screen, you are not in DFU mode but standard Recovery Mode.
6. Hit the OK message that should popup to restore your phone.

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