Meh.
Sucks pretty bad, but I would have said "You know what? Just get it fixed and send it back."
At least that's free. Better than getting a broken one back for free now.
Then I'd use that as an excuse to buy a new pistol. As if I NEED an excuse to buy a new pistol...
Now, from a customer service perspective, I would have probably talked to whomever is the person actually in charge of such things about the counter offer. See, fixing the broken gun is FREE...because that's what they do with their warrantee work. However, if they're going to make a discount offer to REPLACE the broken pistol, then the discount should take into value the actual worth of a Mosquito in the discount.
For example:
Let's suppose the MAP for a Mosquito is $299. (I have no clue...I made this up because I couldn't find one.) The MAP for the P322 is $399. They could offer to keep your broken Mosquito and credit $299 towards a new P322, which you would pay $100 for the balance of.
THAT would be what I would call a "fair deal" on customer service...for both of you. They sell you a more expensive gun for essentially what you would have actually paid for it all out of your own pocket, complete with their warrantee. They keep your damaged Mosquito in exchange which they can either fix or dispose of as they see fit. No loss at all on either side, unless you call spending $100 for a $400 gun a loss because of your personal budget.
Heck, I'd even consider arguing my having to pay $55 shipping for their warranty work into this as well. Certainly Walther didn't charge me a single penny to do warranty work on my new 9mm CCP. And I'd be happy to point that out to them, too.
Otherwise, you could simply say "No, fix my Mosquito for free and send it back, AND I'll buy a new P322 at the MAP price locally."
PERSONAL STORY.
I recently bought a Walther CCP M2, 9mm. It was defective out of the box, which I discovered at the range. I contacted Walther, explained what the problem was, and they emailed me a FedEx label. No cost for me to ship it back to them this way. They received it and, as I expected, they decided to ship me a new one instead of repairing it due to the nature of the defect. While I was talking to the customer repair representative, who was telling me the status of this and when they expected to ship me the new pistol, I said "It wouldn't break my heart if you sent me the CCP M2+, as it's the same pistol and price, just with some slightly improved differences." He said he would see what he could do.
I got a CCP M2+ back.
Price and quality will attract business. Good customer service will attract repeat business.