I haven't read the rest of the thread yet, so I may be saying what others are saying.
I COMPLETELY agree with you! He was wrong, and he should have admitted it. The cost of the fabric had nothing to do with his mistake. It was just plain arrogant of him to ARGUE with a customer or to make you feel like it was in any way your fault. You asked him if he would mind cutting less than their stated minimum, and he agreed. Period.
I would definitely take it up with the owner or manager - who needs to know about an impolite worker. An LQS makes more money from people who are happy with their service and who return than from people who only come into the store once. AND THEY KNOW IT!!!