Yeah, I guess they are charging you 'retail' which they shouldnt considering your special situation, I mean if its not a warranty replacement, they should at least cut the cost down! They are doing exactly what most cell phone companies do, sign you up for 1-2 years locking you in a contract and giving you a great phone at a subsidized price. However, if you break or lose the phone, they'll charge you the outright price for a replacement.
If I were you, I'd stick to the fact that they never recommended or included any surge protection. Tell them as a consumer you didn't know about lightning strikes and have never had any equipment affected by it and it was their job, to inform you about it. Most states have their own electrical standards and bylaws, but most of them require you tell you about it, which they didnt obviously. Tell them if they dont, you'll contact the better busines bureau and inform them about this unpleasant experience in dealing with the. That should be enough to set their pants on fire and give you a free replacement.
Thanks for your great help Spock. I would stick to the surge protection not provided or recommended , which is true.