That does sound like it could be a hardware problem. And good to hear you did some troubleshooting to confirm the problems are not with your ESC.
However before sending it back for replacement, can you give me some details on what version of arducopter you are using. Also did you load any parameter setting files onto the board after installing firmware? Lastly could you just try loading arduplane firmware to see if any of the other motor outputs work?
But it does sound like you have done some testing yourself so if it is indeed faulty send us an email with your order number and we will organise to replace it for you.