You know, I've found time and again that the level of service quality you get from Apple really varies, not only from store to store but from person to person. I've been fortunate in that the few repairs I've needed have been handled perfectly at my Apple store, and I've always gotten the machine back in the same condition I left it. On the other hand, the way I've been treated by store managers and employees varies incredibly at the same store, all the way from absolutely perfect service down to the level where I felt so mistreated that I've e-mailed Steve Jobs and filed multiple negative feedback forms.
Your experience with them is probably somewhere in-between. Obviously, the outcome as it is now is completely unacceptable. Be sure they know that, and be sure your correspondence ends with a perfect outcome for you. You can be polite but extremely firm, and I think it's called for in this case if whatever happens next is not to your liking.