On existing iPhones (and iPods, and iPads), there is not a lot of distance between the glass surface and the LCD, but there is some. There’s also a very narrow amount of air between the touchscreen glass and the underlying LCD. If you’ve ever got a bit dust under your display, that dust is in the air between the glass and LCD.
It’s mentioned briefly in Apple’s promotional video about the design of the iPhone 4, but they’re using a new production process that effectively fuses the LCD and touchscreen — there is no longer any air between the two. One result of this is that the iPhone 4 should be impervious to this dust-under-the-glass issue. More importantly, though, is that it looks better. The effect is that the pixels appear to be painted on the surface of the phone; instead of looking at pixels under glass, it like looking at pixels on glass. Combined with the incredibly high pixel density, the overall effect is like “live print”.
I bet the price to repair shattered iPhone glass is about to go up.