I can see why the Hobby shop might balk at returning the engine and why you are shy about pushing the issue.
I've dozens of engines with dozens of hours of flying time each that don't look as abused as this one.

I know the feeling: new to the sport (30 yrs ago), with a model on the building bench half finished and a nice new engine just sitting idle waiting for the model so you can get in the air... so you get inpatient and start "getting to know" the engine by tearing it down and putting it back together a couple times (probably without the proper wrenches I see).

It happens.
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