M.,
I'm pretty sure your school doesn't have a leg to stand on in denying services to your child, or in ignoring bullying. As a teacher and a mother I have a couple ideas:
First, I wonder if an official "label" of ADD (if it could be appropriate) wouldn't give you more options? For one thing, if your child has such a label, it would require the writing of an Individualized Educational Plan. You would be on the committee that planned this, and your doctor could be as well. If it was written into the plan that recess could not be revoked, the school would have to follow the IEP or be held legally accountable. Such a label would not require that you medicate the child, as any medical treatment would still be up to you and your pediatrician. Of course, if your doctor doesn't believe that he has enough symptoms to warrant a diagnosis, this won't be an option.
Second, consider the ramifications of moving teachers, even if you were allowed to do so. I'm concerned that it might send your son a couple of negative messages, such as that if he has a difficult time working with someone or if they aren't nice, he won't have to work with them. This isn't the case in any other part of life. Also, he may get the idea that he isn't strong enough or smart enough to deal with people that are difficult, which isn't the message I want my children to get.
Third, document everything. If you go above the principal, you should have dates, topics of conversations, copies of emails, etc. to show that it's been an ongoing problem.
Fourth, many researchers, teachers, psychologists and others have been questioning the ways positive reinforcement is used. She may not be understanding the current debate or maybe not relaying the ideas to you well. In any case, I do want my children to learn to do what's right simply because it is. Granted, in the meantime, I use positive reinforcement as a tool. But many teachers, parents and others have discovered that our children get addicted to the prize or reward, and without it, make the wrong choices. So it's an ongoing debate that lots of reasonable and well-meaning people are engaging in. I'd ask her what she means by that and what she is proposing as an alternative to behaviorist approaches.
I know that nothing here provides definitive answers, but some things to think about. I wish you and your son the best!
J.