I'm going to go by my LHS today and talk with them about this very topic: can they return the loco to Lionel or do they eat it if I refuse. I ordered through my LHS, even though I knew I could both buy cheaper and have it quicker (I'd already have it it I bought from Klein) because I want to support them. I would think they could return defective products and in some sense this is. I like the loco otherwise however. Still don't know what I am going to do.
In addition, I can't imagine Lionel is not going to respond to its customer base over this. Seems incredibly stupid for them not to do some some of mea culpa and adjustment/credit for customers who keep the locos . . .
