Wow, Apple is really trying to get on the good side of its customers — first it offers two months free of the buggy Mobile Me and now it will replace your defective MagSafe adapter for free! I've probably had the white insulation go on about two of my magnetic power cords, so I know how expensive it can get to purchase a new one.

Once the wires get exposed, it usually renders your power cord unusable so this is indeed a nice gesture from Apple. If this has happened to you, Apple advises taking it to your local Apple Retail Store for evaluation and it will replace the cord for free if there aren't any signs of abuse.