Yes, it would have been more expensive and more dangerous. It would have been more expensive because 1) More phones would have burnt, more liability 2) All of the phones would have to have been recalled anyways 3) Fewer people would have returned them, thinking they could get away with it which would lead to #1 again. It would have been more dangerous because of 1 and 3 previously, more phones in the wild = more being used = more risk.
As it is, they took a nearly $20 billion write down. If there were serious injuries or deaths and their entire stance was "we sent out new batteries and asked people to responsibly recycle their defective ones" - they'd be screwed; possibly out of the mobile business. This would be compounded by what we know now: the second wave of batteries were also defective. Keep in mind, they didn't know that then.