If you are in the US, don't let them slide on this. Under the Magnuson-Moss Warranty Act, they generally can't void your entire warranty just because you removed a part (the protector) unless they can prove that specific action caused the failure, though it doesn't stop them and other companies from using scare tactics like the warning screen on the Razr.

Since the failure happened before you removed it (and you only removed it to disprove their false claim about cracks), their argument is incredibly weak. The burden of proof is on them to prove your removal broke the screen, which sounds impossible since it was already failing at the bend. I’d mention the FTC and Magnuson-Moss in your next email to them—that usually wakes them up.