You guys really do have a great forum here... very helpful.
Its good to know that this is a very common problem and is most likely only a paint crack.
Updates:
I picked the bike up Friday from LBS #1. Surprisingly, they didn't try to charge me for the wheel... when I got home I realized why. The wheel was still untrue and not round. Not even close. Whatever. I'm done with that shop.
I've now moved on to bike shop #2. They are family owned and have been around since the 50's. I walked in showed them the bike. He noticed the "hop" in the back wheel and said it was probably from the previous LBS over tensioning spokes. He said he could try to fix it but considering labor costs and the risk of breaking (already) over stressed spokes, it may be better to throw another wheel on.
He walked to the back and came out with a (used, but much better(hardware-wise) )rim. He told me for $75 (at most) he would swap everything over to the new rim and true them both (front and rear).
So that's basically:
30 for rim
12 for truing the front wheel
30ish for the labor of swapping all the hardware over to the new rim.
Itll be ready to pick up Tuesday