2003 Corolla, clutch need to be replaced?

[swatspyder]

I have a 2003 Toyota Corolla, bought used 5 months ago. The car had 64500 miles on it in 9/2005 and now has 66000 miles on it. My clutch disengages after depressing it about 1/2 - 1 inch down. I have no idea whether or not I have to get the whole clutch replaced or if there is some kind of mechanical problem. This issue started becoming more obvious about a month ago, taking less and less amount of depression on the clutch to release it. It is the total opposite of having to press the clutch down to the floor to disengage it. Toyota says that since I am under warrenty, if it is a mechanical problem they will replace the clutch free of charge, but if they find it is wear then i have to pay 600 then for them looking at it and 300 more for the replacement of the clutch itself. Another automotive place will do the whole replacement for 550. So I do not know what to do at this point.