Costco's return policy changed in April- it's now 90 dayd in-store. After that it reverts to the manufacturer's policy (2 years if you get from Costco) which means you send it back to Apple and they send you a new one. As long as it's not damaged due to abuse.
Still a great return policy, but not like it once was.
And for the record, I've owned a handful of MP3 players, and the iPod kills them all. Functionality, "cool" factor, sound quality, it has it all. If you're thinking a small Nano, then you could probably save a few bucks by going with a more inexpensive brand and your kids wouldn't mind the difference too much, but anything bigger than that and I say go with Apple.
Re: the durability. Yeah, they do break. I've had to replace two big storage iPods in the past 3 or so years (but that could be because of the hard disk drive inside them rather than the flash drive used in the smaller ones- the HDs are more prone to damage). The solution is to get a good case, and have your kids use ALL THE TIME. My sister bought one of those hard plastic clear cases that is still pretty slimline and her iPod is mint, even after multiple drops/whacks/etc.
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