LBS being unreasonable or is it me?

Sounds like an over-zealous salesperson.  I'd go elsewhere.  No reason at all to pay a deposit for a bike that they already own that is just not put together. 

~Mike

If they already have the bike in stock (albeit not assembled), there is not really any extra expense to them in putting it together.  Obviously at some point they would have to assemble it to sell, so they are being unreasonable.

After all, if you were willing to buy a bike unridden, why would you go to the LBS when it would be a lot cheaper to via an internet dealer like BikesDirect?

You shouldn't have to put down a deposit to have a bike built, fitted and spec'ed out for you when test-riding at a LBS.  BUT, if you DON'T buy any bike from that store at the time of the fitting, it's fair for them to charge you for the time and labor to go through the fitting and evaluation process.

Inside Out Sports in Raleigh, NC built and fitted FOUR bikes for me at the same time.  It took me six hours of test riding to determine which one was best for me and I bought it.  If I hadn't bought it at the shop that day, I would have paid the labor bill for all the work they put into helping me find the right bike for me and fit it the best for me.

"Buy the bike shop; not the bike" is  the old saying.  Find somewhere else to go or speak to the owner if this is the only shop in town.  You deserve better. 

I work at a shop and it sounds like the salesman is either: 1. trying to blow you off because he thinks you're not serious about buying and is an a-hole or 2. they don't really have it in stock and would have to special order it in that size.

I would talk to the owner and find out if they do have it in stock because you're interested in the bike but don't know if it will fit you. Buying a bike is a big deal and if they want any of your business then they should be willing to build a bike they already have in stock; like someone else said, if they build it for you to try it'll go on the floor after it's built. (especially if that size is not already on the floor)

Did you pay for the fitting?

If so you are in a tough spot.

If you didn't spend any  more go to another shop. Many shops will adjust a few bikes in your price range to fit you and let you test ride them. I did this at a shop and they built up the bike, set it up to fit me and even changed out the stems so they would fit better. I did pay money for a fitting. I didn't end up buying a bike from them as they were expensive and would charge the higher list price with no discount. We bought a kids bike from them to recoup the fit fee..which was credited only when you purchased a bike.

O.K. I'm a newbie, what is an LBS? I'm thinking that it is a s... bike store. I would take my business elsewhere and then ride my new bike to their store to buy a very low price item. This may be tacky, but somehow bring up how much it cost. They don't seem to care about if the bike really fits as much as getting a sale.