Not sure what dealer that is but time for a new one. I'd be at the point of getting the phone number for the district rep and arranging a meeting with that person too. I'd be frustrated enough with the engine on that thing but that comment about the $50 would have put me over the top.
If you have the option of working with another dealer, I would give them a call and ask them what they would do. For service and warranty work, the dealer who sells the bike have no inherited obligations to service the it.
I personally buy all my bikes from one dealership and have all my warranty service work at another. Why? Because one dealership focuses more on selling bikes and the other has a top notch service department.
But what concerns me about your situation is that if the service manager told you to go blow your motor in order to repair what is probably a simple issue on a motorcycle with only 500 miles on it, shows a lack of integrity and if they are willing to openly stick it to MOCO, it is almost a sure thing that they are willing to stick it to their customers.....which seems like what they are doing to you right now.