Frank - Thank you for the update, and I am really sorry about the headaches. You deserve a new motor. Have you discussed small claims court or the BBB with them? I am pretty sure either option would result in a decision in your favor. The paper work seems pretty clear. If they had just sold you an engine that worked, none of this would have happened!
That said, they did do a lot of work for you (to date), I think even if they don't replace this engine, you got your warranty's worth of service and repairs. Sounds like you had 30 years of great stuff from merc, so it seems silly to let this one get the best of you... It's not like they didn't take care of you at all before, or that you had lots of years left on the warranty. You did get 5 years out of that motor... maybe try a verado next? I think 2006 was pretty early on in the optimax era, so I am sure things are better with optis now too.
THE BURNING QUESTION... If you don't get a new opti from them, what next? Are you leaning towards etech? DF140? New Honda? Yammy? Maybe Tohatsu??? This should probably be a whole new section on the site, let alone a new thread: "Frank's new outboard search." My attempt at "silver lining"; if you don't want a merc, now you get to pick out something new!
While you are waiting for a new outboard... better get one of these:
http://devour.com/video/water-jet-pack/