Well...
Unless they specificaly state the product is sold AS IS, it is illegal to refuse to exchange or provide a refund for a defective item. If they refuse to exchange your item, contact your state attorney generals office, as well as UPS (to file a complaint with UPS, no legal recourse there, but at leat you can get UPS riled up if enough people call)
Also, call them back and tell them this, and demand to speak to a manager
No, im not a lawyer, but I have a friend who is, and this is the advice she gave me. Some of these bigger companies just assume you will not take action against them because they are big.
That said,
I find it hard to believe that Fry's would do something like this, they should know better.... I think you just got a stupid CSR ( as usual)