If you want tough as nails protection for the Iphone - take a look at this.
http://www.otterbox.com/iphone-cases/iphone-armor-case/
I have one - I use it on my boat - it is definately waterproof - I dropped it in my pool one day - while on a call - and it did not leak and I did not drop the call.
It is a bit big - it is heavy but it is perfect for me - I am in Angola at the moment and the dust is a killer - nothing gets into this case though.
You do have to use a bluetooth headset - I use the Jawbone.
Everything is fully functional - the only things that you cant do when it is in the case is access the silence switch on the side and charge / sync. It is easy to get in and out of the case - just two flip latches - and you can use regular headphones with it - the inside of the case has a headphone jack that slides into the connector on the phone with a regular connector (waterproof) on the outside.
The touch screen works well - you do get a slight oil on water look if the membrane sticks to the screen - but it does not affect the way it works - it just looks a bit funky - but I didnt buy the thing for the looks - it has saved my phone several times.