I look at the Costco return policy as an extended warranty. I once asked one of the associates if Costco sold extended warranties. He replied that my satisfaction was guaranteed or the item could be returned, period.
When I buy a product at Costco, I figure that if it costs more there I am basically getting an extended warranty with my purchase. I figure that I can buy a four year EW on most products, so since most consumer electronics have a one year manufacturer's warranty, I get a five year total warranty. If something I buy at Costco breaks in the first five years, they get it back. All things being equal, I will pay a little more for a Costco item, because it comes with a built in extended warranty.
Once I did use the policy for other than a warranty concern:
They lowered the price of the Akai plasma I owned at the time by 16% (coupon) in three months. They wouldn't give me a direct refund, but did let me bring back the set and purchase a new one for the new price. The second one buzzed, the third one could not be adjusted (no contrast), and the Vizio 46" that I tried on a Friday went back the next day (LOUD buzzing). I finally just took my money back and moved on, but I was very glad to have a satisfaction guaranteed, return policy.
As far as using the policy as an upgrade path, unless a new and better item comes out very shortly after my purchase, I cannot see myself using the policy simply as upgrade insurance. My plasma incident that I mentioned earlier wasn't meant to be an upgrade, I just wanted to be able to use a current coupon three months after my purchase. I called and spoke to the manager, and he actually told me that he could not do a direct refund, but would be happy to return the set, and let me buy a new one.
I think that if you think of the Costco policy as an extended warranty you cannot go wrong. Also, like 90c4 said earlier, if you feel embarrassed to return it, don't.