As I said on the SL site, this is an obvious case of an inexperienced mechanic screwing up and the shop owner not having the cajonies to stand up, admit that the mechanic blew it, and bite the bullet.
The machine shop is in cahoots with the shop because they have more to loose by siding with you then by admitting that the shop lied. You were a one time customer where as the shop will be continuing.
I think that you would be doing yourself and those that follow you a great dis-service by not getting a lawyer involved. A couple of hundred bucks for a consultation might be well spent if it would save you thousands in the long run and prevent this shop from doing this to someone else. I am no big supporter of lawyers but in some instances they do have their uses.
Good luck, and keep us posted.