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iPhone's Sensitive Touch Screen
The reality is that the iPhone's touch screen is one of the most vulnerable features on any mobile device. For any active iPhone user it is just a matter of time before you end up dropping it on the wrong surface, permanently sending the spider webs of cracks over your important touch screen. At this point, there are a lot of questions as to what to do, but each one depends on what you are willing to spend.
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There are dozens of services online offering repairs for the iPhone touch screen, often costing fewer than forty dollars. This is an attractive offer, but there is little accountability for these services. Many ask you to make payments before you even send your iPhone in for touch screen repairs. This is rarely a good idea unless you can actually go into a location and talk to someone. Only deal locally and make sure you have reason to trust them ahead of time. This should only be under special circumstances and is not usually advisable.
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There are a number of alternatives that state they can replace the touch screen, but again after market parts for the iPhone are controversial at best. Before you purchase and try to apply one of these devices you should check with an expert from the Apple Store.
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Apple Store Repair or Replacement
Usually you want to just deal with the Apple Store when it comes to iPhone repairs. Apple is not going to cover the cracked touch screen under its warranty because it assumes the fault to you. You can get an "Out of Warranty Service" that replaces this part of your iPhone for $199. At this point, you have to decide whether this is going to be worth it. If you are about to resign your contract you may want to look to see if you can get a new iPhone for the contract signing price of $199. If not you will likely have to pay the regular price. If you have an older iPhone 2G or iPhone 3G model this may just be a signal for you to upgrade to the iPhone 3Gs.
Options for a Cracked iPhone Touch Screen
Here are articles with information about cases when you need to repair or replace your broken iPhone.