I agree with you on not using the credit card dispute procedure on this one because I'm not sure that it would be completely appropriate. It would be a good way if you hadn't known about being charged until you received your card statement. It doesn't seem to be quite so proper in a situation where a person essentially "agrees" to the charge at the time of the stay by accepting the bill and then, upon reflection, feels it should have been handled differently.

Don't get me wrong; I agree that that you have a completely legitimate complaint with the hotel. But the time to refuse payment in a case like this is at the time of purchase, in my view. If that was a firm refusal or clear-cut impasse at the time and then the charge was made anyway, a dispute with the card company would be a legitimate next step. I'm not seeing it quite that way, from what I can understand of it.

If you have documentation that the stay should have been on points and that the reservation wasn't honored that way, I would be more inclined to take it up with customer service people at the hotel group's international HQ and try to get some kind of "make-good" on it that way. You should be entitled to more than just a return of your points for this failure in the process, in my view.