That could go either way. Many mom and pop music shops will include the set up as part of the retail cost, other will charge a fee for set up. That varies depending on complexity and location. In NJ it's ~$75 for a set up and new strings.
The situation sounds similar to buying a house. New houses have never been touched, but they haven't settled and could have problems. I would expect that your new guitar has a warranty (1 year I'd guess) so you should be covered if its defective. I am not impressed by the argument that the display model is "set up" because it may not feel just right for you and needs to be set up again. So why not go for the brand-spanking-new guitar?
The other issue is condition. Does the display model have chips in the finish, wear and tear on the hardware, pick guard, etc? Are there pick and finger nail scratches on the top paint? If it looks used I wouldn't take it.
Also, will the display model have the same warranty as a new one? I'd find out.
Last but not least, are they offering a discount on the display?
It's a matter of weighing all these factors and whether or not you feel comfortable with the display model. You have to live with the choice.
I'd find out the following.
What is the warranty on the guitar (manufacturer and store)?
Will the display model have the same warranty?
How much does the store charge for a set up, is it free with purchase?
Is there a discount for the display model?
And go from there.