I would advise against that. If the dealer is trying to cover up their mistake, taking them to court may open a can of worms that may cost him more then to cost of a replacement title.
Good point.
Just a note, the OP is a she. :)
So, the way to fix this is to go to the DMV, get a replacement title, pay whatever fee is associated with it, and let it go. Sounds easy enough to me.