^ What he said.
I'd immediately ask to speak to a manager and have him/her define their purchase and warranty return policies, in writing. If they give you any crap then tell them that you'd like to return the phone (pay the restocking fee if necessary) so that you can take your business elsewhere. Also require a written report on why they are refusing to replace a defective product so that you can escalate it to the corporate level.
Don't get pissed - just tell them upfront that this is how you'll be handling their lack of customer service. Be sure to ask if they're a member of the Better Business Bureau, so that you can also report it there.
If you know someone else that has an S3 you can compare your button functionality to theirs and maybe even go in with that comparison phone. Or just use the floor model for comparison.
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