REALLY? BROKEN FLYWHEEL?

Yep, but I think that if the trans is shot that it or the installation broke the flywheel. I assume they will maintain otherwise, but why would they replace the trans under warranty if it wasn't their fault?
Maybe they have a guilty conscious about the flex plate?? $1104.00 seems kind of high for R & R plus a flywheel??? I'd call around to a few other trans shops and ask what they charge for R & R just for comparison. If someone else can do it cheaper pick up your new trans and take it somewhere else for replacement>