"Genre" vs "Literary"

As a little background, I'm taking an Intro to Fiction course for my English major. I like the classes I'm taking in general, but one thing about the heads behind the Humanities college pisses me off, and it's the deal between "genre" and "literary" writing; their attitude is if it is not "literary", it's not worth reading or writing.

However, I must be missing something, as, about 6 weeks into the course and after who knows how many short stories, I have no idea what really constitutes a literary piece that keeps it from being a fantasy, realistic fiction, or historical fiction like what every story has seemed to me.

We had an inclass debate about it today, due to me being frustrated with this apparently snobby outlook on writing. Our workshop T.A. had us read "End of the Line" by Aimee Bender, then asked "Would you consider this a Fantasy piece?"

A shitstorm erupted, and I was one of only two people who was defending the view that it's a Fantasy piece. If you've never read the short story, it's about a big man buying a little man from a pet store and the interactions between the two.

I think it's a fantasy piece because it takes a concept that generally cannot happen ever in every day life (owning a tiny man in a cage as a pet) and states that it can happen, and this change is central to the actual plot. However, people saying it isn't Fantasy kept stating reasons that sounded silly to me.
1) it has no magic in it
2) it's not like Lord of the Rings
3) If one were to replace the little man with a dog, it's not fantasy anymore, so why is it fantasy with the little man?
4) It doesn't do anything fantastical, it just takes the idea of big men owning little men and acts as if it's completely natural.
5) It's not fantasy because the story is driven by and centered around the characters

The T.A. ended the discussion before I could get any counters into that. I think all these reasons are silly, but I want to know from you guys; Am I wrong in thinking that "Genre" and "Literary" are false terms, or is there an actual working definition that separates "Literary" works from "Genre" works?

I tend to think "literary" is a form of quality, not distinction. It does not exclude it from being genre fiction. Frankly I can't get my mind around on how it would.

It is a bit sad that fantasy carries a stigma that enables the high-minded to cover their ears and eyes and feel happy about it, but what are you gonna do.

Besides piss everyone off around me by arguing the point every time the T.A. or someone else brings it up, I guess nothing else.

I mean, my T.A. even ADMITTED to not reading a lot of fantasy. How could I persuade someone who won't even read what they're snubbing?

>stigma that enables the high-minded to cover their ears and eyes and feel happy about it

If the "high-minded" do that just because something is labeled fantasy, how are they still called or considered "high-minded"?

>3
Snubbing? So your T.A. posited the question and then picked a clear side? That sounds sporting. (What is a T.A. anyway? Tits'n'Ass? Teacher's Assistant?)

>4
I was trying to go for sarcasm there.

I'm sorry, when I hear someone say "This is not literary and not a good style of fiction because it's a genre piece" then picks a "literary" piece that's clearly also a fantasy piece, and is not capable of even supporting this claim in class, I tend to think of it as snubbing, unless there's a better word for it.

And T.A. does mean Teacher's Assistant.

If that's verbatim, or even close to it, your TA sounds like a fool. I'd prescribe you to RAAAAAGE and read a good book, but it seems like you've already started on it your own way.

That's what you get for not studying a hard science.

WTF? How utterly dumb. LOTRO IS NOT THE SOLE MEASURE OF FANTASY YOU SHITS! NO POINTY EAR GAYS NO FANATSY??? FUCK THAT!