Well, I thought I'd post on my results of this ordeal. I got an appointment last Thursday with the Westfarms Apple store in CT for the hardrive exchange. The girl on the phone at the store told me to bring in just the computer and that they would transfer my data onto a new drive, exchange them, then erase the old one before sending it back.
I get to the store and after being asked why I was there, I showed the genuis my copy of the email I got. He said it was the first time he heard of this. Ughhhhhhhh!!!! But he went in the back to check and quickly came back out and said they knew about it and he would start the paperwork. When I told him what the girl told me (from his store) on the phone, he said they do NOT put your data back on the computer but that I had to do that myself with Time Machine. I told him about this thread and asked him why the girl on the phone said what she said. He had no clue and asked if I knew her name. I didn't. He also said the old drives go back to Apple and they destroy them. They don't erase them at the store.
Anyway, he was nice and he brought out and showed me my new 1 TB Western Digital hardrive that I was going to get and told me 1-3 days. He also told me how to transfer my data with Time machine and said it would be easy. As it turned out, it was.
So this morning, after 3 days I got the call and went to pick up my machine. It now has the Western Digital black Caviar 1 TB drive in it. They only installed Snow Leopard (which is what I had on it when I left it with them).
First thing I did when I got home, was attach my Western Digital external firewire drive to the computer with my Time machine backup and turn it on. Then I turned on the computer. After going through the welcome song, I got the dialog boxes to choose my language and keyboard. The 3rd page was the one that asked me if I wanted to transfer my data from a Time Machine backup (amongst other options) and I did. Then, I selected the external drive I wanted to transfer from (I only had one attached at the time) Then I chose to backup everything and it went through its transfer. For me, about an hour and a half. A couple of more questions about registering, and I restarted my computer.
I found a link to these instructions here for anyone who has to do this:
http://web.me.com/pondini/AppleTips/SetupAsst.html
Upon restart, Time Machine asked me if I wanted to back up to that drive and I said yes, and it did a whole new backup. Then I noticed through Software Update that my Snow Leopard was not up to date. I thought it would be from the Time Machine restore I did, but it wasn't. So I updated.
So now everything seems to be back where it was. I also had a clone of my drive on another external drive with Carbon Copy Cloner, but I have not attached that drive back yet. I have been testing to see if everything works and is where it should be before I attach it and start doing backups to there too.
You know, I called Apple support after droping off my imac to the store to ask what there policy was in regards to the stores restoring our data back on the drives and the guy I spoke to said the stores have NO obligation to restore our data back, but some stores do it because of their own policy. So it is up to the individual stores on if they want to do it or not.
Just reporting all this in the hopes it will help someone else. I am happy now - so far - that all seems to be back where I was 3 days ago when I brought in my computer, except that I now have a Western Digital drive that hopefully won't fail under certain conditions.