She didn't make it up, she quoted a senior official - the Boeing payload manager at KSC (Mike Kinslow). This is the first public mention that I've seen, but it is in the planning stages (as a recent addition, which is why this is the first public mention of it).
So what DO you do when the battery charger bursts into flames on orbit?
I'll reinforce your point here. Knowing something about the fire response strategy on ISS you do the following:
1) If you actually are lucky enough to witness the charger burst into flames, remove the power from it, hit the fire alarm, put on a mask, and expend a CO2 based fire extinguisher on it. The mask keeps you from asphyxiating yourself with the extinguisher.
2) If you don't physically see what happens (which is most likely, ISS is big and some modules may go unattended for hours) - the combustion products will trip off a cabin smoke detector in the module. That will stop ventilation inside the module and ring the alarm. In most cases, this will put out a fire in zero g - fires tend to smother themselves without gravity to force convection currents.
Meanwhile, not having any knowledge other than a smoke alarm from a module, the crew will converge in a safe haven in the vehicle away from the fire. Two (of the 6) may go forward to investigate with masks, fire extinguishers, and a hand held device to detect combustion products (mainly so they know if they are entering a lethal pocket of CO or other gases). Hopefully the module isn't a total fog of combustion products - if it is, the crew is likely to isolate it and leave it. If you don't know what the fire source is (because you can't see it), it may well end up that the entire module ends up getting powered down to ensure an electrical fire isn't being fed. This of course has some pretty serious ramifications as well - shutting down power to a module is not a simple event to reverse (since all the computers, cooling, lights, etc. go down with it). It's likely that collateral damage to a module's systems would happen if that were done.
Even if you do understand what happened and know it's out, the harmful gases from burning plastic aren't going to just go away on their own, they have to be scrubbed out with deployed fans and special canisters. It would take weeks to clean up.
Fighting a fire in a closed environment is very different than something you would do in your home. In zero gravity, most of the control is by prevention - don't use flammable materials, stop ventilation on a detected fire so it doesn't spread, don't use things that generate poison air when they burn, etc. Even a minor fire that many of us have encountered at one time or another (smoked electronics, plastic bag on fire, etc.) would be an extremely serious event in space. That's why so much time is spent making sure equipment conforms with fire prevention standards.
Disclaimer - I work for NASA.
I don't think the cost per kg of cargo is a driving factor on this decision. The US government has a vested interest in supporting both SpaceX and Orbital on the COTS contract. If successful the vehicle SpaceX is developing will provide a domestically produced launch vehicle that has shows some promise in having a lot of launch flexibility and much cheaper rides to orbit.
Additionally, if SpaceX is successful it will provide some negotiation power in getting upmass to ISS (the rides get more expensive when Progress is the only game in town) and will also provide some competition on government contracts to the United Launch Alliance consortium of Boeing and Lockheed Martin.
We actually had an interesting situation where I work (spacecraft operations). We had a senior aerospace engineer depart after 15 years to become an airline pilot, of all things (decided to turn a hobby into a job).
About a year later, he came back part time because the routes he flew left him with large blocks of free time at irregular periods during the month, and he was getting bored (because before his "hobby" was flying....and he stopped doing that on his days off!).
It was a win-win situation. He'd give us 40-60 hours a month of hourly work when it was convenient for him. We kept his hopper full of things like documentation, training, and other stuff that most senior guys consider dreg work. Even though he now has enough seniority to avoid pilot furloughs, he'll volunteer to drop his flight hours if the airline needs him to. He just increases his hours with us (and he's so good, we'll take whatever he gives us up to full time).
Since he's not interested in advancing up the ladder, he really does a great job on this low-visibility stuff that really helps an organization run well if it's done right.
I understand your point, however this particular software is basically a system for tracking vehicle "funnies" on the ground, it's not something that is in the loop of the vehicle flight software or something used to make critical decisions. The old system is pretty dated and unwieldy to use (I've used it, I work for NASA). We're obligated to try out cheaper alternatives to custom code to see if it works for us without compromising what we are trying to do.
Sometimes it does work for us - the Mission Control Center workstations and the onboard command and control laptops on the Space Station were all recently converted to Red Hat. It is in many ways better than the old proprietary unix solutions because with the source it's easy to do our own mods to the software. We still test the daylights out of it since that is critical software, but it's a lot easier to support since we have the source code and can do our own bug in-house bug investigations, patch it, or rip out things we don't want/need.
I guess I'll take exception to calling astronauts the "annointed elite". Read through the biographies of the current crop of astronauts, and you'll see a pretty broad demographic of military officers, researchers, doctors, and even a teacher. Almost all came from a middle class background and got where they are through hard work.
The astronaut selection process is completely merit based, albeit extremely selective (since there's way more applicants than openings).
I'd be interested in what your propose NASA do to put "normal citizens" into space. Right now NASA and a couple of other government agencies are SpaceX's main funding source, and SpaceX probably has the best chance of coming up with a private ride to orbit for normal (albeit rather rich) citizens to go to space based on this work.
So you think that money is the root of all evil. Have you ever asked what is the root of money? -- Ayn Rand