When did great customer service become doing the right thing? "Doing the right thing" in instances like this, is purely subjective. The bottom line is the right thing is for Smith and Wesson to take care of him or prove beyond a reasonable doubt they where not at fault. They have not proven beyond a reasonable doubt the gun was not at fault. One could say the same thing about Federal. The only reason anyone is gunning for S&W is because the OP sent it there first. I bet you'd be saying Federal should pay for his new gun because it's the right thing to do, if he had sent it there first.
I am sorry but there word is not good enough proof. I would want hard facts on why they believe its not there fault. What test did they run how did they alter the gun determine the cause of issue etc etc. The OP's word that it happened when firing is supposed to be good enough. Their word is good enough until it goes to small claims court. The OP has already arranged to accept S&W's offer, so that's not an option any longer.
Great customer service would have been taking care of a customer. They ARE taking care of a customer. For all they know he could have run the gun over with a truck. Would it be their responsibility then? There is nothing entitled about wanting something to work you payed for. It did work, up until the point where the gun met with a particular cartridge of ammunition made by Federal. Sure, forensics could determine exactly what was at fault beyond a reasonable doubt, but neither S&W nor Federal want to spend that kind of time and money on something that has no real consequence to their multimillion dollar business. There still no proof the ammo was at fault other then Smith and Wesson saying it was. Once they provide reliable proof the ammo was at fault then sure that's wanting to be entitled not until. I'm sure if he pushed the issue with S&W, they would have given him more details regarding their findings. But he didn't. He accepted their offer, which they were in no obligation to give.
On top of all that on a issue like this. I think its more profitable to just eat the cost of a single 500 dollar handgun. How many people will find this forum (its the largest Smith and Wesson forum on the internet). Then decide to go with a different manufactures because the customer service seems questionable in a few threads. Every company has good and bad reviews. People are people after all. I doubt one bad review from the OP would do them in.
I know when I was looking at 1911's I took a strong hard look at Magnum Research. The gun in question was like 700-800 dollars. I liked the build quality seemed really well made and fitted. What ended up turning me completely off of it was the fact it had questionable customer service. I hope to never have to use customer service. In a worse case I do need customer service I like to know they will do whats right to the best of there abilities