This probably wont help you fix the issue, but I have had almost the same problem. I had a 1.0 board with the solder still in the holes. Sometimes when I started the chip it the xbox LED would start red, stop, start red, stop then start blinking red and yellow and sometimes stop or sometimes try to boot the ms dash. While it was doing this I could never even access Xeniun OS by starting witht he eject button. Each Time it did this I had to eiher bang on the bottom of the box (Dont Do This, I Was Just Mad) or take it apart and realign the chip again (A pain to do everyday). The way I stopped this was, I VERY CAREFULLY drilled out all of the solder in the holes, replaced the chip and never had that problem again.
So with what you have told, it is only 1 of 2 things in my oppinion, *A Bad Chip* or a misaligned chip. I would say it is a bad chip because when i was going through my ordeals, I was often messing around with the chip while the xbox was running (Yet again DO NOT DO THIS, I was hoping mine would break so I would have to buy a new one, but it didnt, tough machine) and even if I took the chip and shook, turned or removed it from the xbox, it would still try to go to the MSDASH. I would try again, to see if you could get a chip replacement. It sounds like they gave you a run around the first time.
Be advised what I have just described to you as me doing was pretty stupid and if tried could make your XBOX a nice paperwieght. Also all of my experiances were with an Xenium ICE solderless chip on a 1.0 board.