If you just keep the bad paperwhite for use as a spare, you just need to use it without it being registered. So you can sideload DRM-free ebooks onto it without any problems.
I'd presume you won't be able to register it, though perhaps others know better? But it makes sense to me that if Amazon have de-registered it from your account and told you not to bother returning it to them, it's pretty much a non-existent Kindle as far as they are concerned and you won't be able to register it to any account.
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