How close is too close? And what then?

I don't know if there's an objective way to answer this; certainly, the decision to publish will rest with the publisher, so it will largely be up to them.

Welcome to the market economy -- you get zero points for coming up with a good idea independently, unless you also come up with it first.

I think the thing to do here is to reevaluate priorities. First, we all must recognize that the chances of any of our games getting published are very, very slim. In that sense, you could equally well be asking, a few months from now, "hey, I just submitted to a publisher and it got rejected; now what do I do?" The context is different, but the substance is the same; what to do with an unpublishable game?

The answer, I think, is "play it!" If you've spent a lot of time honing a fun game that you and your friends enjoy playing, then cherish the fruit of your labors and play the thing! Take satisfaction in what you've created. If one can only find satisfaction as a designer if one's games are published, then one is very likely to be unsatisfied, I think.

All that said, I definitely sympathize with you. I came up with a "semi-blind" bidding mechanic that I thought was pretty cool, only to see a virtually identical mechanic published in a different game a couple months late. I think that my game is salvageable, but that certainly took the wind out of my sails on that design. Luckily, I had enough other projects that it wasn't too big a deal. So, diversity can also be a good key to handling an impasse in one design, whatever the nature of the impasse.

I would say, definitely don't jettison the thing, and don't change a good, working game just so that it becomes publishable. But that's the craftsman in me talking; the businessman might say something different!

Good luck!

-Jeff