If they can't return the SNA (understandable), couldn't Starwood credit you new ones? If that doesn't work, I would at least ask for a partial refund or points credit.
My understanding that the whole SNA upgrade is an automatic process so I can't really believe the reason given that there was a "mix up in communication". Essentially, if your SNA clears, you will be re-booked into the upgraded room class as reflected in your account.