I just had something similar happen to this cake I baked for my sis' 40th B-Day. http://www.cakecentral.com/modules.php?name=gallery&file=displayimage&pid=1323390
It was to be my gift to her so no issue with profit loss there, but there was a lot of hype about me baking a "special" cake for her so there was the issue of disappointing her and embarrassing myself.
I also had bulging even though I used a stiff dam of BC, a very thick fruit filling and set the layered tiers in the fridge overnight. Luckily it was only 1 layer of filling so 1 (HUGE) bulge. There was no bulge when I first took the tiers out but they did appear after I had them all covered and stacked.
I managed to salvage it by placing the decorations strategically over the bulge (hence why it's a bit too close to the bottom of the tier).
But even after that I learned somethings:
- I really think I put too much filling
- The dam I put around was right near the edge of the cake so it did not give the "overflow" anywhere to go
- The layers were probably too heavy
Sorry this happened to you but look at it as a learning experience and a mistake you won't make again. There is a lot of great advice here from PPs and it's great you took the initiative to get some answers for yourself.
It's a very cute design and I'm sure they'll be back to order as you were very gracious with the customer.