Well, thanks to an email to Major Nelson, I got a call from xbox yesterday.
I told the guy that I didn't think I should have to pay for the repair, and he agreed.
Unfortunately, I had already shipped it to them which means I had already paid for the repair.
When I told him that, he said there was nothing he could do and that I was stuck paying for it.
After a bit of even tempered aguing from me, he put me on hold, came back and said the best they could do is offer me a free controller.
Needless to say, I am not a huge Microsoft fan at the moment. I really hate that because I love the 360.