Let me start this off with a disclaimer. I'm the VP of technology for a Canadian/US technology company with over 15 PowerBook's, Mac Book Air, and Mac Mini's in Inventory. I have been a software developer for over 20 years, and have personally owned 2-3 mac products at any given time for the last 10 years. I have also owned over 30 laptops in the last 20 years, from multiple vendors (Sony, IBM, Asus, Dell, HP, Compaq, etc. etc.).
I should also mention that I have a PowerBook 17" that just had its battery bulge in exactly this manner.
The concern is this, a laptop battery that doesn't retain a charge, or has degraded performance is a 'consumed' battery - period - I don't think anyone would argue this point. This is in-fact quite common, and I have many laptops with batteries that have this sort of degraded performance profile.
A laptop that through normal wear-and-tear has a battery physically expand to 2-3 times its volume is not normal - its a design defect. Search the web, and find a single reference in Apple literature to this behavior on "consumed" batteries - you won't find it. Search for another vendor that lists this as "normal" behavior - you won't find one.
Add in the fact that a similar battery on the 15" Powerbook was recalled for similar problems, and it looks like Apple dropped the ball. Maybe the cost-benefit analysis for replacing the defective 17" battery wasn't there - or maybe the larger cell size meant it would only do this after warranty - either way its poor customer service.
I will contact Health and Safety Canada (yes I'm in Canada) next week - and ask them to open a case on this. I attempted to get satisfaction from a Genius appointment this evening, and was informed this was normal. It is my belief that this behavior violates the rules for protections on hazardous materials - and needs to be investigated by the authorities. Lithium in any form is not something to be messed with lightly - its flammable, reacts with oxygen and water - and is generally nasty stuff if not treated carefully or properly.