Works only when plugged in to USB... help!

Question

My apologies if this has been covered, but I've been searching and haven't found my exact problem anywhere so I'm hoping someone can help me. This is a string of stupid decisions on my part so I'm hoping we can all overlook that...
I have an original iPhone that got wet because I had it with me at the pool earlier this week. It did not get submerged, just lightly splashed. The sticker inside is even still white, but since it hasn't been working properly since, I know my issue must be due to water damage. Naturally I did what everyone in retrospect says you shouldn't do, and checked the phone to see if it was working, since the splash really wasn't that big, and it didn't seem like enough water was involved to cause any damage. It seemed to be okay at first. Then it starts telling me that the peripheral that is plugged in isn't compatible with iPhone (nothing was plugged in). A couple hours later I noticed the headphone jack was not working- I get sound through the speaker but not headphones. By this point the sleep/wake button was no longer working so I couldn't shut it off even though I desperately wanted to. Then it started doing what it does now- turns on and off every 10 seconds or so, alternating between being off and displaying the apple logo. I think I am beyond the bag of rice trick at this point (which i did try), and since it didn't get submerged I don't think a lot of water got in there anyway, but some must have.
So here's where it gets tricky. When I have the phone plugged into my computer, any computer, via USB, then it works fine for calls and apps and syncing, just not for headphones or the sleep/wake button.
I took it to the apple store where I was told that they don't fix these (it's out of warranty), that apple figures it's cheaper for china to just build a new one than for them to fix them in-store, and that it would be $199 to replace my old 2G phone. Since it works, kinda, I can't just give up on it and shell out another $199. Still, it would be nice to put the "mobile" back in my mobile phone and not need to be tethered to a computer to use it.
I have considered upgrading to 3G/3GS, but my spouse and I are both happy with our old, cheaper, 2G plan, and we both prefer the non-plastic, heartier 2G phones to the newer ones. If at all possible I would love to keep my 2G phone without having to shell out $199.
Can anyone identify what the faulty part in this situation might be? I'm hoping I could replace the on/off headphone flex cable and it will solve these problems, but I don't want to waste time and money to repair that part if it might be something else, or if it's another kind of short circuit that is irreplaceable. Any wisdom you might have is GREATLY appreciated!

Answer 1

This will only help you a little. I had an identical problem, caused in almost the identical way. Same thing, no immersion evidence, but could not shut phone off, and it "relit" every 10 seconds or so. I did ALL of the recommended fixes, but nothing worked. I found that one of my USB cables, when left in the iPhone (but not connected to anything else) allowed it to function normally. No it's "portable/mobile", but I have to leave the plug in the docking pins, and stuff the wire in my pocket. I've upgraded to the 3GS (same price as Apple's 2G replacement, since I was at 2 years on my contract). I haven't yet tried cutting the cord to the plug and seeing if that works. I'm giving the original phone to my granddaughter, so I might cut the cord and see if the plug works without the cord. This might help you get a "mobile" phone back, if you don't mind a cord in your pocket, or cutting the cord and leaving the plug in works. Hope this helps.