What should I do!? - Sketchy Apple Repair Service

Question

What should I do about this? Should I contact Apple Support or Verizon and let them know what has happened? Please help!
I have just been through a horrible repair service request. I sent my iPhone 5S in for service about two weeks ago because there has been dust trapped under the backface camera lense since I got the phone. The dust sometimes causes problems with the photos, and disrupts the autofocus function. I had previously sent my iPhone 4 in through Apple's mail-in repair service two years ago, as the mute-switch did not work out of the box. The service was excellent, the phone was replaced, and I had clear instructions on what to do in order to get my device working again when the new one was received. This time, this was not the case. Not at all.
I got my comfirmation email from AppleCare for the service request, which listed the "reported issue" as "device will not power on", after I had just reported it as "dust under camera lense". A red flag immediately went up for me; this was not the issue I had just submitted! They also listed my product as "iPhone 5" in the first email, then "iPhone 5S" in a second email saying a box was on its way.
So I got the box, followed the instuctions to back up the phone, erase all content and settings, and pack it into th box. I soon noticed the issue on the box was listed as "iPhone will not power off". The funny thing is, I had just got a third email saying the issue was "Dust under camera lense". I was so incredibly confused, but I packed the phone up and sent it anyways.
I got another email when the device was received by the AppleCare screening facility. It said diagnostics would begin. That very same night, I got another email saying "Despite rather extensive testing by our team, we were unable to duplicate the reported issue 'Dust under camera lense'. Please provide us with additional information to duplicate the issue."
I was a little bit dissapointed, because I thought my initial description to "replicate the reported issue" was pretty clear. So I elaborated. I explained what types of light the dust and small fiber under the bakcface camera could be seen in. AppleCare asked me "what software does this affect?" So I explained how it affected the camera apps. They then told me they would do additional testing.
After one more day, I received an email stating "We have determined your issue is not covered under warrenty, and it would be less expensive for you to simply purchase a new device, rather than have us repair your current one." There was no way I was paying $700 for a replacement, when in my previous experience the devices I sent apple were replaced or repaired free of charge. If my warrenty states that my iPhone is "free of defects" until the warrenty expires, why is this not considered a defect? Or is it simply that I got some lazy employee, who didn't care to fully evaluate my product and issue? Read on, my experience gets even better!
So, I opted to just have the device returned to me. I was told in one of the emails I could take it into an Apple Store (which is 4+ hours away from where I live) anyways. So, the device returned to me today. I opened the box to find the battery completely depleted. I proceeded to plug the phone into my computer and charge it. So, the device powers back on. iTunes prompts me "Allow access to this iPhone?" I choose yes, then I am told to "Respond on the iPhone". To my utter dismay yet again, the phone has been passcoded. I could not access the phone at all, and it had not been erased when sent back to me. So, being as intuitive as I am, I type in "1, 2, 3, 4" as the passcode. The phone unlocks. Curious, I opened the photo app. I find picutres taken with both the front and back cameras of various colors and squares printed out onto papers, and a few up-close pictures of a rather scrubby looking asian man's face.
At this point I am completely fed up with my service. I erased the phone, and proceeded with the setup screen. Upon asking if I would like to restore my backup from iCloud, I am prompted to enter the AppleID password for some strange AppleID that is not mine, and is an @hotmail.com address. I could very well disclose the address here but probably shouldnt. So instead, I restored the backup from iTunes I had made, and put my sim card back into the phone. I have all of my content and settings back now, am am right back where I started; but I am left to ponder on what course of action to take regarding this very scary experience.
What should I do? Should I contact Apple Support or Verizon and let them know what has happened? Please, your help is important to me!

Answer 1

First I would have returned the iPhone to Verizon the minute I discovered dust under the camera lens and had them replace it with a new on.
Second, the instant there was a problem with sending it in I would have used a telephone and called AppleCare and discussed the issue with them.
Do the pictures that are on the phone show any of the issues you claim are present?
Incidentally, you can do an out-of-warranty replacement of the iPhone for $269 USD, not $700.
But finally, I would call AppleCare and ask to be transferred to Customer Service. Give them your service number and go over each of your complaints with them.