And the lifetime warranty won't be worth jack if the frame cracks at a point that's been touched up by hand. They'll bleat that what damaged the paint was sufficient to damage the frame beneath and you'd be left walking to work.
Buy a new bike, expect a new bike.
It is a new bike, it's just a new bike with a small paint chip. Anyway, Giant aren't refusing the OP a replacement bike, they are just offering an alternative, which saves them money and hassle. It's entirely the buyer's choice, puts £100 in their pocket and probably saves Giant more than £100 in swapping the bike out and getting rid of the soiled/damaged bike at a reduced price.
You make a good point about the warranty and it would be a good idea to get confirmation from Giant that they will honour the warranty if the dropout is touched up and subsequently fails. That's assuming the OP wants to go with the £100 option of course.
I'd go for the £100, you wouldn't and we'll see what the buyer decides.
