I'm Buying a New Car But There Is a Major Issue?

Okay, I went in and started looking for a new car at a Nissan dealership a couple days ago. I knew I wanted to get one of 2 models and I did extensive research on Nissan, Honda, and Toyota midsized sedans and SUV's that would be affordable to me. I used truecar.com to get a good price quote(2600 below invoice) and my plan was to use some solid negotiating skills to get it down another $500 or so.

So, I test drove both models, like the SUV more, and so we got started with negotiating. Pretty much, we spent about an hr, and I was able to get it down about $400 below my truecar.com quote, so I got it down to $3000 below invoice. Pretty good BUT....

Then, I said, I want to trade in my old car, he took the keys, appraised it, and told me they'd only give me $300 back for it. I knew that it was an old car with rust, scratches, some dents in 2 places, stained carpeting, but it still runs well, drives fine, and it's probably tradeable for 750-900 I think.

So, I ended up signing at the bottom line for the final price we negotiated. But, since they didn't have the car in my color, they told me I'd have to wait a couple business days while they got it from another dealership.

So, I HAVE NOT GONE THROUGH THE FINANCING DEPT. YET AND I STILL HAVE MY OLD CAR IN MY POSSESSION. I called some people and found out that I have not signed a legally binding contract. This means that I can decide to change or cancel the original offer b/c it is not a contract, it's just like we put a final price on a napkin.

Come today, I did some research, and I found out that the 2011 model of the vehicle I almost have was recalled just a week ago. I was not made aware of this and I even told the salesguy that I knew the '08 and '09 models were recalled but he said hey, 2010 and 2011 are fine, but he either lied or doesn't know jack about the car.

My question is what should I do? I plan on going back to the dealership on Monday whether or not the car is there or not. I plan on asking the salesguy if he has something to tell me about recent news about this 2011 model. If he acts like nothing is wrong, I will ask to speak to his sales or fleet manager, I will show my internet printed story about the recall and I will tell them I have 4 options:
1. I say forget it and end the deal and ask for my $500 credit deposit I put down back.
2. I want to trade up to the model with more features/packages at the same price I was going to get the base model for.
3. You bring the overall price down a couple hundred and give me close to 1,000 for my trade-in
4. You bring the price down by at least 500-700 and give me 500 for the trade-in.

What do you guys think? I know these guys need my business but I also risk not getting anything. I have other options but I already had a solid deal but the lies and slight deception has me p****d off now.

Any responses over the next day or day and a half will be much appreciated. We all buy cars and we regular people need to stick together and help each other out against these greedy salespeople.
Additional information: The recall was for a power steering issue. I am concerned whether or not the car I would be getting hasn't been fixed or if it has been fixed, I plan on asking this before giving my 4 options.

2. This is an AWD option that is probably already a good value although I think the dealer is making some profit since it's a 2011 and they are tryin to get it off their lot. I tend to want to try to see what they will do for me since they have provided decent customer service up to now.
Additional info(12/11 9:30am)

3. Right now, the financing option is 0?PR for 60 months, 290 per month.
4. I do plan on calling the service dept on Monday morning and asking them if the new cars have been fixed and worked on as it relates to the recall, which is a power steering issue before I proceed further.
5. I talked about a recall of this same model with the salesperson in 2008 and 2009 and he said if those were resolved, then the 2010 and 2011 models shouldn't have any issues.
6. As a car salesperson, you have to be knowledgeable about what you are selling. Whether it was a lie or just him being stupid, it's not an excuse. If I did my research, why isn't the guy who is selling me the car doing his research?
7. I've spent about $500 on my car this year over a front headlight issue and a cylinder issue, I had a V6 and it was down on 5 cylinders and would stall when I started driving it after a minute. I've put $500 in that car and yes, there's some rust near the wheels because of salt, some scratches, a few dents, and stained carpeting in the front of the vehicle. But, the car still runs fairly well, engine is fine, the car gets you place to place.

8. I heard that they will appraise the car as close as $1000 below the actual value that it can be traded in so they can make a profit that way. So, if I got it for $300, then it should really be worth closer to $1,000. It's only got 114K miles on it too.