No the Optus Rep is the one giving you self serving, incorrect and i1legal advice here (they should know better). Separate to any warranty or insurance are the Australia Consumer Laws. These apply to just about any product or service you buy in Australia and can not be side stepped (its illegal to suggest that they don't apply). As the seller Optus can't just palm you off to the manufacturer (although you can approach both to have the issue resolved.
Essentially goods must be fit for purpose and remain so for a reasonable time. You can read more about them here
That said, it may be better to go through Google directly. Its a fair bet that Optus will just return the phone to Google themselves for repair anyway. If google have said yes then they should arrange for a way for you to send the phone in (they are responsible for transport costs as well under the ACL).