When I got my first iPad, my then 3-year old son dropped it about a foot onto concrete and shattered it. Fortunately I had the protection plan and Best Buy gave me a new one. I immediately purchased one of those $80 Defender cases.
Now I have two iPads, two cases and two sons, 5 and 3 y/o who play with them a lot. Those Defender cases have made them pretty much indestructible. I've seen them get thrown across the room like a frisbee and at worst, I've only had to do a hard re-boot (once).
I think the main problem is when something hard hits the glass on the screen. I agree that normal “drops” are usually no-damage affairs.
However, the physical damage that can be done by a two-to-ten year old to an iPad pales in comparison to what internet-related damage can be caused....:0)