Anyone face this type of dilemma?
Gah, that sounds terrible and familiar. A couple of things you might try: 1) Explaining over and over, over a long period, how IQ tests are set up on purpose to make everybody fail some questions, and that that's the only way they can find people's limits; and 2) Searching for easy testing opportunities that you can use to build up testing confidence a little bit (DORA and DOMA come to mind, as you can do them over the web at home, and I think the Raven matrices test mentioned here recently is another one like that).
I'm sorry to hear the testing went badly... I think it's bad when that happens for lots of reasons, including possible waste of money, not getting the results you needed for advocacy, not getting information which would help you understand your child better, and possibly worsening testing avoidance/anxiety. Hang in there.