Are they essentially saying they don't want to replace it under warranty because they found foreign glass in the tracks? Otherwise, it seems like it should be covered.

The $4100 does sound expensive but a colleague recently had the one in his 2004 replaced for ~$3300(Euro 2400). One of the plastic pieces in the cassette that lift the glass broke, clearly not normal wear and tear. He and his wife were furious that it had happened within the first four years and were able to get BMW to pay two thirds of the cost. The replacement casstte they got was the newly developed one first installed on 2007 models. If you decide to do the repair, and have to pay for it, don't settle for the old cassette.