I have been in a similar situation before.
In my case, it was not prepaid, however the front desk saw my confirmed reservation from the travel agency (I _believe_ it was Travelocity) and agreed to check me in while they dealt with the agency to figure out the cost difference. The “dealing” went on for a week and in the end I paid the hotel’s price and then continued the discussion with the agency after. Ultimately the agency paid me the difference (amounting to $1000s).
What is not clear to me in your case is why you were discussing the cost when it was prepaid. Assuming the hotel also saw it as prepaid, any other discussion is between the hotel and The booking agency.
Based on my experience, I would have made just checked in and dealt with the agency after.
This is not meant as an attack, only a question/suggestion.