I had a similar experience two weeks ago. They asked for my iPhone's passcode when I went in to have my screen replaced. This was apparently going to be stored in a database — I saw the form field on his iPad.

When I refused to give it to them, on the basis of privacy, the employee said that Apple could not provide the service. He backed down a little when I asked to speak to his supervisor, but then said that not providing my passcode would void my iPhone's warranty. Eventually they performed the service without my passcode and had me perform the functional testing myself before walking out of the store.

I wonder how many thousands (millions?) of iPhone passcodes are stored in Apple's database? And of course the average owner probably doesn't think to change the passcode after the service is completed.