Although somebody might expect me to defend the guy, I think you're absolutely right. You can try e-mailing PADI, asking if your certification is recognised, and if they respond in the affirmative, ask why the instructor didn't accept it. Ask the instructor if he checked with PADI and/or EFR before refusing you, and ask for the proof.
Many people might not believe this but PADI are (usually, *ahem*) on the ball when it comes to their Quality Assurance processes. I happen to know this for a fact because a friend of mine has had a complaint made against him (Not his fault but nevertheless a minor violation of standards) and is going through it now.
If you felt that you have been ripped off, go ahead and make the complaint - to PADI, to EFR, to the manager of the LDS - at the very least I think a gentlemanly solution would be an apology made by way of a full course refund. I understand your cynicism - I am, after all, an honest man searching for the truth with a stolen lantern - and it is exactly this sort of cynicism I'd like to see removed from divers, because it shouldn't be like that.
Safe Diving,
C.