Just an update:

We Won! Took a tag team approach with some dogged persistance to get the company to bend but they did agree to redo all of the kits at no charge.

The company however never acknowledged that they were at fault but rather sited the need to have customer satisfaction. (Hmmm.. original artwork resubmitted which showed proper placement of the logos and distinct color difference between the jersey and bib...) Nevertheless they are doing the right thing.

This has been a horrible process and I just want to caution anyone who is thinking of doing the same thing. Research the company, ask friends, blog, and don't allow yourself to be talked into a contract by a fast talking service rep. Read the contract, ask lots of questions and by all means ask for swatches of the material.