Musician or Scam artist???

So, a few days ago, I bring Rosie (my guitar) to the local music store to get one of those little peg things that hold the string to the bridge fixed. Not sure how the thing broke... could have been vodka induced... not sure. Anyway, for about a buck, this young dead head like musician dude easily and quickly fixes the thing for me and even tunes up the low E string (where the peg broke) and confirms my tuning for the other strings as well. No sweat...

As he brings my baby back to me, he's picking away at the strings and looking like he's going to orgasm from it. Now, he sounded way better than I ever have, and I know it is a beautiful instrument, but I felt as if the guy was stroking my wife right in front of me. Ok... so I'm not too freaked out. Then he asks, "Is that authentic Indian Rosewood!?" (So, the guy really does know what he's talking about!). I say, "Yeah." Then he wants to know how much I paid for it. He is in awe over the deal I got. (So am I, the store that I bought it from, had it marked incorrectly by about $100).

He then says, "Dude, you need a set-up", and I say, "Yeah, I've been meaning to get that done," and he says, "It will cost you about $40 bucks and we would have included it for free if you bought the guitar from us. (yeah, and I would have paid $150 more too!). So, bring it back in and we'll straighten the neck, and make that fret board shine like its brand new!"

So, here is my questions: Am I getting played as smoothly as he played Rosie? Does a new guitar really need it's neck straightened, or should I try to bend his a bit? Is $40 bucks a good price for a setup? Should I go back to the store I bought it from, even though I feel like I stole the thing from them? If I let this guy do the setup, which he says will take about 3 days, will he be gizzing all over my baby? When I pick it up, will he have replaced my "authentic Indian Rosewood" with "imitation Wisconsin corkboard" painted to LOOK like Rosewood?

I just wanna play man... not haggle and worry about Rosie. Maybe I can let him have my wife for a few days to set her up? She has been a bit cranky lately! Just kidding of course.

Ok... I'm going to torture my self with a song or two. Ciao for now.