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So far my wife has a perfect track record of her iPhone being broken. Her first was put in a cup of water (toddler), her next was dropped during a race (5k) and this one knocked free from her hand during a greeting (friends). Well, being so close to the contract end we almost decided to ride it out, but with a second child about to arrive, I decided we needed to repair it.
You wouldn't think you'd need to gut the phone like a fish to replace the screen, and it is a daunting task, but doable with the iFixit instructions. With the tool kit you can get almost all the way through the repair, but I did find a pair of fine tip tweezers to be really helpful moving the Home button and putting those tiny screws back.
Set aside plenty of time to get it done. Tape the screws next the instruction where you removed them, matching the color codes. And relax a little, the insides of that phone are pretty tough. Pay particular attention to those LCD and Digitizer cables. They are probably the most fragile thing in the phone and have to be fed around to the front of the logic board. Just go slow and make sure not to snag them on anything.