Can you post a photo of where the crack is? (insert tasteless joke HERE). On the iPad...
This site (in Kansas) might be worth trying, or at least doing some research on:
*Replacing back cover is $149, and replacing glass is $159.
*Replacing the back cover is $189, and replacing the glass is $189 ($20-off sale going on).
I'd guess anyone claiming it's a $399 fix is trying to convince you get a new iPad 2, and I'd assume Apple would probably prefer that.
Or else if you've got a crack that's running across both the case and glass, maybe they're quoting replacement of both.
If you're going to let kids play with it, I'd definitely invest in a true hard case that can survive an occasional drop. Heck if I ever get one, I'll get a case like that cause I'm a clumsy oaf in general.