No one is laughing. Trust me (or read my previous ranting here!)... I was extremely upset when I found out -- after getting NO answers from ANYONE at Apple for several weeks (via several phone calls) about what they were sending as replacements, and sending my pristine 1G to them before getting any answers ONLY because I was erroneously told that the service request was only good for a certain period of time (and I was afraid to wait too long) -- that the replacement is this tiny, hard to use 6G unit. I called to see if there was any way to get a 1G back (I was even willing to sign a release of liability or pay them to replace the battery in a returned one that was in really good exterior condition) and eventually talked to a manager in Customer Relations or whetever they called it (could have been the same woman you talked to). Although the three people I talked to that day were all very nice and understood why I felt they ahd handled the situation poorly by not allwoing me to make an INFORMED CHOICE about what to do with my nano, the answer from each person, all the way up the line, was that there was nothing they could do. I would have kept my 1G and taken my chances with the battery if I had known what the replacement was.
I think that they handled this extremely poorly from a communication standpoint -- I cannnot, in fact, think of any way they could have screwed it up MORE -- and I believe that they probably did so intentionally in order to get people to turn in as many of these units as possible, but no one at Apple was anything but professional and (seemed) genuinely sorry that I was so upset. So I definitely understand being ****** off.
Your nano, however, was not worth anything CLOSE to what you think it was. Go out to eBay and you can get a refurbished one for about $50 (and then, if the new one also potentially has a bad battery, you can then take it to an Apple store and pay them to have a new battery put in).