Wow, I'm a bit shocked that they would say this to you, actually. My first son (also a Jacob) was a very colicky infant. I was so scared that daycare wasn't going to take him! But, they did. I always felt bad for them, but they never, ever complained or said he couldn't come.
In my opinion, sit down and talk to the director. Not to tattle, but to try to come to some agreement. What works at home for you to get him to nap? Does he like the swing (magic in our house)? Does he like a blanket? What is his schedule like at home?
As for them rocking him to sleep...that should be a given and they should be willing to do that. Another room? Probably too much to ask. I don't think they could legally do that unless a teacher was with him, which isn't really possible. Soft music? Maybe offer to bring in your own CD player and a CD for his crib.
If he truly is crying the majority of the day and insists on being held, it may be hard on them. They have a ratio or 3 (maybe 4) babies per teacher so it's not easy to have one that must be held all day. I would try to find some ideas with them that will work. I don't know if it would be better or not, but maybe you can come in for a day and see how the day is with him. Just to observe and see what they could do to help comfort him better.
Good luck with this.
--T.
Edited to add: When I picked up my boys from daycare today, I asked the infant room teachers (where my 5.5 month old is) what they would do if a child was having a hard time adjusting like your son is. They said they've had babies like that before and admitted it's very hard on them, the babies and the parents. They said it usually subsides after a couple of weeks, though. I asked if they would ever tell a parent that their child couldn't stay and both teachers said "Oh, no way. Never." They were shocked that would even be an option. I've been at our center for over 2 years and know the teachers/staff pretty well - one of them has even been at our house for a party. So, I could tell they weren't blowing smoke up my tush just to look good. Hope that gives you some perspective.