Hmm.. it would be so hard to give up a puppy even after having it for only a few minutes! I guess you really need to follow your gut instincts on this. I can't understand why a breeder would not have taken care of those puppy teeth a lot sooner - that can be painful if left. It is true that a lot of 'toy' breeds have LP, but not all - and it's quite ridiculous of her to think this is ok. A responsible breeder would be trying to better the breed - by breeding traits like this OUT, not continuing to breed them.
I dont know what advice to offer you - just do what you feel best doing. I would be calling my mom and crying, haha.
Good luck in your decision