Check the circuit board on the dock connector, and cable #4 for corrosion. If you have another dock connector board, try swapping them around - hopefully the issue hasn't spread to the main logic board.

http://www.ifixit.com/Teardown/iPhone-3G...

I would do a full reset on the phone - if you have not done so.

This did the trick on my phone, when battery consumption was high despite all services being switched off.

It sounds like you have a damaged dock. I have replaced hundreds of these parts and the home button is very temperamental. I am not sure where you can get home button.

Try silica desiccant.

Water damage is very difficult to diagnose as it can seep into different parts of the phone. you are lucky it has not damaged any of the power management chips.

good luck anyways

almost same story but i opened the phone and was trying to clean the two prongs and the broke off how can i replace that? im looking at the man and i dont see instructions on that part. thanks

This is what I'm going through right now. The home button works but it's progressively getting worse and now I have to press down hard on it to get it to work.

I was wondering, if I take it in to Apple, would they be able to diagnose the issue without me having to pay for it?

Yes, they will diagnose your iPhone as water damaged, and you will need $199 for a replacement. Or you could buy a new screen assembly, and dock connector assembly, and DIYs

Question, if I pay for a replacement, would it fall under the initial warranty I had for the phone?

if you pay for a replacement the warranty would be irrelevant, as you are paying. If the repair was a fault on apples part then they would replace your handset for free.

My iphone 3gs home button works. but it's very hard get to one point to onther. i really have to push hard.

I have a 3GS that was water damaged and the home button no longer works. There seems to be an issue with the board though as swapping buttons and docks out did not do the trick. Something must have been damaged internally because no amount of alcohol baths on the board is resurrecting it.

I have a 3GS that the home button circuitry shorted out on. I was able to determine that the short is somewhere on the motherboard. Rather than pay to get my phone fixed I jail broke my phone and am able to use an app called the activator to use screen gestures to simulate a home button press. This was by far the easiest route for me. I used jailbreakme.com which was very straight forward. Note you'll need to have java enabled for you to be able to use this website. I believe if you haven't updated past OS 4.0.1 then it should work.

This invention saves Home Button from water damage from the surface:-

http://web.singnet.com.sg/~ipunggol/iRin...