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As far as what's breaking, it's interesting to see the significant differences between the iPhone 3G and the iPhone 3GS. Most of the failures of the iPhone 3G have to do with the touchscreen by far, followed by buttons, power and battery.
Looking at iPhone 3GS, power is the biggest source of problems, followed by the touchscreen, battery and the buttons. It seems that Apple has improved the buttons and the display significantly between the two versions, but power and battery-related problems have actually worsened.
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Read the full report from SquareTrade here [PDF].
[img credit: SquareTrade]