I just got a new one from one of those places on the high street that cuts keys and re-soles shoes. it seems fine for my 2006 Defender. The key fob needs to be nearby for the alarm/immobiliser to disarm though, unless that has been disabled.
My 2004 Defender doesn't have any of that alarm/immobilser stuff. The key is just a plain old fashioned key which would cost about £3 to get a new one cut.