Repair Update 3:
I ended up talking to the owner on the Friday of that week (he did end up calling me back on Thursday). His story was that they sent out the frame to the manufacturer and they returned it. At that point I should've been contacted but somehow that didn't happen and it was also assumed that I had agreed to do a local repair so that's what happened. He apologized for the confusion, said that he wasn't aware that this had been arranged since August, etc. and seemed genuinely interested in making things right. So he offered to paint the frame or I could upgrade to a better one (at a large discount).
At first this story didn't sit right with me so I ended up contacting the manufacturer via email. I got a quick reply saying they'll look into it. A week passed so I sent another message on Monday (yesterday). Later that day I got a response saying that the owner of the store will contact me and he did (actually he did before I got the response). I was planning on going for a ride anyway so I decided to drop by the store so I could talk to the owner in person. Anyway, same story: the frame was sent to the manufacturer, they checked it and turned it down blaming the user or the rider. He tried to get it warrantied again, but the manufacturer wasn't going to bulge. The dealer blamed the manufacturer for a faulty design while the manufacturer blamed the dealer or user for not following instructions and properly tightening the seat collar (which would allow the seat post to slip and damage the frame). Either way, no new frame for me.
I'm still upset at the dealer for all this confusion. They should've let me know right away that the damage wasn't covered by the warranty (both from apparently having other cases of this and after it was returned by the manufacturer). Also, if the frame would've come back painted I would've been happy just as well. It's one of those cases where if you don't talk to the owner, nobody knows what is going on...
Now for the sort of good news: the dealer can paint the frame (either just the area damaged or the whole frame) at their expense or I can get a new (better) frame at a discount. Earlier today [Tuesday] I found out the price of getting a higher model frame and the cost is basically the difference between the two frames, so it's as if I had bought the more expensive bike last year (I even test rode it before deciding on the more affordable model I ended up getting). So yeah, I would end up paying extra if I go this route, though at least not all is lost as it's more of a "reset" (though of course if I had bought the bike last year or during the Spring bike show I could've gotten a discount). Also, I get a warranty and the bike decals aren't altered (like what would happen if I paint the old frame) so it wouldn't hurt the resale value.
Anyway, I haven't made up my mind, but I don't think I have much of a choice.