I ended up taking it to the other lexus dealership in town for a second opinion. Turns out it was the valley plate leak. They resealed it and now the heat works. The total was ~1050. This means the other dealership either had no idea what they were talking about or they were trying to get over on me. Leaning towards the latter as the service manager said I was about the 6th person this month to get a second opinion.

 

Yeah my SA originally didnt believe me when i told him this was a common issue (until the mechanic whom did the diagnosis told him its very common on Lexus V8's.