That really sucks, ryshark. I guess the only bright spot of this is that they fessed up to it... kinda.
I'd call back tomorrow and ask to speak with the owner or manager. I'm guessing you weren't talking to either, with the way you said that conversation went. I'm thinking that with your line of questioning ("you think that's ethical?") an owner would've sensed possible impending doom and gladly given you a full refund. My guess is that if that's their company attitude and policy, they probably won't be around long unless they're the only game in town.
Regarding contacting American Express for a chargeback, that could be difficult because you indeed got what you bought. While you could liken it to "defective" merchandise, I'm pretty sure whoever you talked with at American Express wouldn't see it that way. They'd probably file the chargeback for you, but it'd probably be reversed in a month or two. Your only other avenue is that if the store didn't have their return policy PLAINLY VISIBLE, you could claim a chargeback because they would not give you at least store credit. When a store has to fight a chargeback, they have to show three main things: (1) the customer received what they bought, and (2) the customer has every opportunity to see/read the return policy, and (3) the card wasn't reported stolen or cancelled. If the store can show those three things, then the chargeback will most likely be reversed in the store's favor.
But getting the word out works too, as long as it isn't libelous or slanderous. "So-and-so sells dyed corals" seems like a truthful statement.