Last week I was in the elevator when someone bemoaned having cracked their iPhone screen. I told them that Apple stores where now fixing screens, but they responded that they had tried Apple and had no luck. I decided to do some research and found that Apple does repair cracked screens for $199 but there are other solutions as well.
There is no doubt that cracked screens are a bummer since most of the time they can be avoided. Over the last 10 years of using a touch screen PDA and smartphones, I have cracked three screens. Both were on Windows Mobile devices (they were actually Pocket PCs at the time). I had them both repaired by PPC Techs and its predecessor company. They have always come through in a pinch and have done an excellent job repairing the device. They now also repair iPhones.
For the iPhone there are two other solutions; a do it yourself process documented by Jeff Carlson and taking your device to an Apple Store. If you are handy with small tools Jeff Carlson process looks pretty straight forward, but since the Apple store has a special tool to remove the screen from the device I would stick with them. The do it yourself process is obviously the cheapest but also the riskiest.
If you don't live near an Apple store I would recommend PPC Techs over the Apple ship in replacement program since you will end up with a refurbished unit rather than your device with a new screen.
My T-Mobile MDA in 2006 with a cracked screen.