When you bought the computer, it was warranted to be free from defect for one year from the purchase date. So it really doesn't matter if they're admitting that it's defective now because it's out of that warrantee. Their hands are clean.
It sucks when computers break at a young age, but it's a fact of life that it can happen. You knew what you were getting into (in terms of warrantee) when you bought it and you had a year to come up with the cash for Applecare. Now they're offering you a seriously discounted repair. I think that's nice of them considering that they don't have to do it.