I'm so sorry they did that. ((hugs)) They are supposed to be an institution that is aware of all this crap, and recognize the potential issues meds present... I had a similar issue about being removed from a program, but it was more of me taking a leave of absence, and simply not being given the option to return...
I would definitely go the legal route to at least let you back into another school... that really sucks. Do you think the support form your psychologist will help you through the situation enough to make it feasible?
I'm really sorry... they should have considered the med issue, and been more involving of you in the decision-making process... I totally feel for you.