I agree, run far away from that dealer who refuses to perform warranty work on a bike you bought somewhere else. Frankly, unless you told them, the service department would have no idea where you bought the bike. I've moved cross country many times and never had any issue getting service for a bike or car I bought in another state... even with a Harley-Davidson.
I've personally bought and sold three bikes on eBay over the past few years and had great experiences every time. Yeah, there are scams out there, but there are jerks in the local newspaper as well. If the deal sounds too good to be true it probably is.
Selling on eBay was great. I sold my last bike in a week and didn't have to have people over to my house to "kick the tires." I took a ton of photos and answered emails. The high bidder drove 500 miles to pick up the bike and paid me in cash. We were both happy.
I've never had to use it, but I did note that eBay offers $20,000 in automatic protection if you buy the bike on their site and it's fraudulent.
Regarding dealers in one part of the state selling new bikes at huge discounts to local dealers, I say "that's life." The other guy may have overstocked on some bikes and is willing to give them away to clear his inventory, so be it. The manufacturer may have been unloading new non-current bikes and guy got a cutrate deal because he was willing to take a truckload... that's just business and the local dealer wasn't willing to take the chance.
I've only bought a couple of motorcycles brand new. I usually buy them lightly used and when I did buy new, the bikes were last year's models that were selling for a song. In fact, I bought a brand new 1988 Hawk GT in 1991 off a dealer's showroom floor when they couldn't give it away (I miss that bike). If anything, the Internet helps these dealers clear out the old stuff more efficiently.
The dealer who refuses to acknowledge that the market has changed simply has his head in the sand. He needs to go get broadband and start competing. Look at what the Web has done for the automobile market. Consumers know all sorts of information when they walk into dealerships now. This info used to be hard or even impossible to get. On the flipside, savvy car dealers are using the Web to sell cars into markets they never had access to before.