HTC Titan does have a SPL update from HTC (http://www.htc.com/www/help/htc-titan/#download)
Tell them you tried to update the SPL because you thought you were missing the 8107 update for WP7, and after seeing this page, you thought that this would make
the update pop up in zune.
That's when you discovered the pre existing f400 error (or not pre existing, you have SPL 2.05 no? They might question that when you send it in... so you might want to tell them it happened after you flashed the 2.06 update and play dumb if they ask you why it's 2.05).
Tell them phone is working for now, but that the f400 error doesn't let you hard reset (you actually shouldn't be able to hard reset so this is true).
Not being able to hard reset, you have concerns that a future update might break WP7, and normally you would hard reset if this happens, but if WP7 isn't working (you can't get to the reset button in WP7) and the bootloader doesn't let you hard reset, you would like to get this probable catch 22 fixed now while still under warranty.
All HTC devices have a one year manufacturers warranty so you should still be covered.
If you get the phone back, and it's fixed, you try flashing it again and it breaks... cotulla has some work to do :/
Don't send your phone back a second time.
I actually told them the truth: I have SPL 1.10, I was unable to update to 2.05 because f400 and I want to flash a custom rom. The guy was apprehensive, but he accepted that not being able to hard reset is indeed a problem, and said that as long as I never got the device to flash I was still under warranty as far as he was concerned. I think that as long as you don't have HSPL you can send it in...