I can't jump on the bandwagon to criticize the LBS.

The point is not whether a steel bike can be repaired, but rather if there is a valid reason to do so. Bike shops need to continuously explain to customers that repairing most of the wheeled toys that you find in most people's garages simply don't make economic sense. This wastes a lot of valuable time for the shops with no chance of converting their shared knowledge/time into earnings. Plus, in the end, most "customers" simply don't get it (which is also why they bought a wheeled toy instead of a real bike in the first place). It is therefore much simpler to say that you "can't" fix the thing, especially when it is highly unlikely that you will be losing a potential/existing customer in doing so.

Personally I would not say that repairing the bike is not possible, but rather counterproductive from an economic point of view. The customer is then obliged to determine on their own whether there are affective or emotional reasons that trump economics. From my experience, non-economic reasons rarely if ever trump money when deciding on fixing a bike and in those cases the customer usually spouts these emotional reasons right off the bat.