That's lousy. Could you clarify which part of AA took that position?
DOT has been very clear that passengers are entitled to full refunds when a flight is cancelled. For example, in the Final Rule for Enhancing Airline Passenger Protections, docket DOT-OST-2010-0140 at 23129, DOT reviewed passenger rights subject to cancellation (emphasis added):
We reject some carriers’ and carrier associations’ assertions that carriers are not required to refund a passenger’s fare when a flight is cancelled if the carrier can accommodate the passenger with other transportation options after the cancellation. We find it to be
manifestly unfair for a carrier to fail to provide the transportation contracted for and then to refuse to provide a refund if the passenger finds the offered rerouting unacceptable (e.g., greatly delayed or otherwise inconvenient) and he or she no longer wishes to travel. Since at least the time of an Industry Letter of July 15, 1996 (see
http://airconsumer.dot.gov/rules/guidance) the Department’s Aviation Enforcement Office has advised carriers that
refusing to refund a non-refundable fare when a flight is canceled and the passenger wishes to cancel is a violation of 49 U.S.C. 41712 (unfair or deceptive practices) and would subject a carrier to enforcement action.
It's hard to think of stronger wording than that -- "manifestly unfair".
The plain language of this statement applies to all methods of payment -- payment in dollars most obviously, but nothing here rules out payment in points or in a mix of dollars plus points of any type. I have always found AA quite compliant as to this rule -- I've never had a fight with AA about this, whereas I'm currently in quite a lengthy fight with Cathay on this same question. If you have exhausted all remedies within AA, you could consider an informal request to DOT for their assistance, or a formal publicly-docketed complaint to DOT. I would be happy to try to help you with either of those.