Honestly, I would, at minimum, get the iPad 2
. I think the iPad 2 will be supported for at least a few more years, and you can pick one up refurbished direct from Apple's Outlet online for 25% off retail:
They even have the newest iPad (3rd generation) for 10% off. Not much of a deal, but still saves you a bit of money.
And yes, most likely, if it's the digitzer/anything related to that front panel, you're going to probably be spending more money than the iPad is worth. I'm not sure when the next iPad will be released but I would get an iPad 2. It's still going to be supported for iOS 6 which is coming out next month, so that may be a good investment for you that will last at least another three years.
And yes, regarding this type of issue before -- it's usually the digitizer or the front button since those parts are the most used; it's not often that something completely internal fails.