I'm a little bewildered. I am reluctant to change the title, since it would make it harder to "match" the paper with the previously presented conference version. The title may not be exactly as descriptive as the reviewer would like, but it still makes clear what the paper is about.
Is this an unusual thing for a reviewer to insist on ? (Assuming one has not grossly mis-titled a paper)
Its pretty silly, as titles are pretty open to opinion. But reviewers can ask for the most bizarre things. Often they are not paying much attention, or perhaps more likely they have an axe to grind. Perhaps the issue that the reviewer raised about your not citing pubs in the journal is actually about not citing the specific pubs of the reviewer. I usually think of the review process as a sort of game, or appeasement process.
Are you willing to change the title to get it in to the journal ? If not, it still seems quite reasonable to re-submit with the same title, while giving a clear (and most importantly, non-confrontational) explanation of why you don't want to change it. Hopefully you can then do most of the other changes or revisions that they asked for.
I would avoid getting into a p*ssing match with the associate editor, regardless of who is "right". Not exactly clear how you will switch AE's. If it is a journal where you submit directly to the AE, then if you send to a different AE, they will probably forward it right back to the original one. If the submissions are centralized, you will need to write a letter complaining about the first AE. While you may think the AE was somewhat unreasonable, it doesn't sound like he did anything that was blatantly wrong.
