Larry,
Note: I updated this post. The previous web link pointed to the wrong Eaton Cutler Hammer Surge Protector.
I guess they sound like an outfit that is not standing behind their product to the extent that they should. They are not servicing the failed units and want to charge the customer far more than you can buy a new one for from a retail source. In other words I really do not care enough to go out of my way....
Put the new one in knowing that is the customer relationship that you have with this company. When you have a failed unit there is little time to make a real change other than just replacing the current unit. It usually involves more time and planning to reconfigure what you have and find a suitable alternate unit. I checked a couple of temp specs for transfer switches and one was 95F and another was 104F. Inside a box in your bay at 110F outside would probably translate into 120 to 130F unit temp anyway. I would install the new one with a fan feature. You may want to check what the temp spec is for your specific unit.
The price you bought the new unit for seemed fair for what it is. There are companies out there that for $150 to $200 sell just a time delay 50 Amp transfer switch. My coach has the original in it that is 9 years old and it is still good. Less electronics may mean a more robust design here given the temperature your bay reaches. If you go that route plan on buying one that indicates that it has DC relays, the AC relay versions have a loud annoying hum.
You could obtain a separate surge protector for $50 that would be wired in quite simply at the main breaker panel. This for example is an Eaton Cutler Hammer version that is a reputable brand that probably surpasses the capability of what is built into your transfer switch. It clamps a voltage spike to ground in milliseconds and can handle 120,000amps of momentary surge.
http://www.homedepot.com/Electrical-Breakers-Distribution-Load-Centers-Whole-House-Surge-Protectors/h_d1/N-5yc1vZ1xiuZbm05/R-100141856/h_d2/ProductDisplay?langId=-1&storeId=10051&catalogId=10053Some transfer switches incorporate a low voltage monitor feature. If less than 105V for 7 seconds then open the relay/contactor. You can decide if that feature is desirable for your situation. In general it is a good idea if it does not cause the transfer switch unit to fail.
I like the idea of an electrical breaker panel surge suppressor separated from the transfer switch because it lives in a better controlled temperature and humidity environment. It has an LED that tells you if it is functional, and if it fails you are not out the expense and difficulty of changing the whole transfer switch system. These surge suppressors are sacrificial units that will handle spikes a number of times depending on how severe they are. Expect that your environment may take a "hit" that causes it to fail. In that case I would want to have a separate unit in my inside panel for ease of repair. Hope this helps.
Later Ed