[Update] Second level/RMA support just reversed their decision. I'm afraid I was rather impolite in my email response to their decision.

So the saga so far:

• Dell laptop 3 months past 1 year warranty
• Battery starts swelling/eploding while on trip in Italy
• Turns out it is a "feature" of the XPS laptops as seen in their customer forums
• Contact Dell, should I return it to you, do you have a replacement you can sell me?
• Sorry, can't even talk to you as the machine is off warranty
• So WTF am I supposed to do with exploding battery? Can't take it on plane. So I take it to local hazardous waste facility
• 4 months later, Dell emails "hey, we'd like to replace the exploding battery in that laptop"
• Great, sucks that it took 4 months, but sure
• Replacement arrives with "return the old battery or your account goes to collections automatically" (WTF?)
• Contact support, yup, they really are demanding the old/exploding battery
• Contact second-level/RMA support, yup, they really did expect me to hold onto an exploding incendiary for 4 months
• Oh, and just for good measure, in case I wasn't pissed-off enough, I can't return the damn replacement, they demand that I buy it

So, to Dell support: You have actually managed to get me more pissed off than when your bloody laptop started exploding on a plane. You have succeeded in not just reminding me how bad the exploding laptop was, and calling again to my mind the incredibly poor initial support response, but have managed to threaten me with legal action, demand money, and generally piss me the hell off. You did all this in the name of customer bloody service and theoretically because you wanted me to mail an exploding battery to you.