Is swelling a “normal” failure mode for Li-ion batteries?

My 3 year old Macbook Pro has a swelling battery, and the Genius Bar rep said:

1) It should not be powered on any more because it could catch fire

2) This is a normal way for Li-ion batteries to fail

3) Because it's normal, they will charge $200 to replace the battery (since the machine is no longer under AppleCare), and presumably because of the fact that to replace the battery they have to replace the entire top panel, keyboard, and touchpad)

What I'm curious about is: do we feel that it's "normal" for Li-ion batteries to fail by swelling and then becoming fire hazards (more than they are normally), or are batteries that fail this way defective?