V-Moda had (still have?) a similar warranty on their headphones. They broke every year like clockwork, and every time I mailed it in for a brand new pair. This went on for at least four or five years.
At least with my recent V-Moda pair they changed it to send us your broken ones and we'll give you a certain amount off your next pair depending on what pair you're sending in and what pair you're buying next. Still a good experience but not as good as the old it broke so here's a shiny new one for free.
