Here's my thought. I understand both sides. They want to have uninjured children in this class. They want your child to be able to stay in their care. They may have every other parent in that class saying either that child stops biting or we are leaving.
I understand the issues of biting, I have over 13 years in child care.
If he is really doing okay without the binky then you may have to sit down and really talk/listen with the teacher. She may have valid reasons for the request but until you hear her side you may not see what her point is. If his mouth is busy doing something else he won't think of biting. He'll show his frustration in some other way.
Coming to a compromise and everyone feeling like they had a say in the results is a good result. She needs you to hear her and not just say "I'm the mom and "I" say so". That is basically saying you are insignificant and your opinion has no weight or value at all. That is like a slap in the face to a professional care giver. Her observations are very valid and do have a lot of value to you.
So I would make an appointment with her, the other teachers in the class as well, perhaps the director or assistant. Just to touch base and talk about what the next step is.
If you are adamant over the pacifier then tell them that he is over the pacifier and that you are not giving it back. But be prepared for him getting kicked out and you won't be able to find child care since you will have to be honest and not lie about the reason why. I would also say that even if they don't ask about why he left the old one you have an obligation to tell them so they can be prepared to openly decide if they want to deal with this.
I would not want a biter in my center and would have turned him down unless I was hurting for money. The other kids in the classroom don't get the attention they deserve when a person is basically hovering over a child to make sure they don't bite. I think that is unfair. It does happen but then there are the times when heads collide or someone falls down and needs a snuggle or bandaid. If they look away from your child, even if they are holding hands with him he may bite someone. He is going to continue biting until his mouth is busy or tired.
They are professionals and should have tried a lot of things to combat biting. Google chewy foods and what to do with a biter. You can have information for them if they don't know about it. Copy it off and have it in hand. Be sure you read it and try it at home too.
There are obviously some things a toddler cannot have. Their food should not be larger than 1/4" or 1/2" chunks. That way it is less of a choke hazard. No raisins or marshmallows, lots of foods can gum up in a toddlers mouth and make a huge clump of goo.
Now the other side of the discussion:
If your child is not asking for the binky or even noticing it is gone then I understand the desire to not give it back. It's backsliding. If he is missing it and wants it still then I would give it back. He is not ready to give it up.
This is why. He is going through too many things right now.
Teething hurts like heck. Chewing makes it feel better, so they associate chewing, or bearing down with their teeth, to less pain.
Talking at 17 months is NOT an emergency. He will talk when he has something to say. It is cute and nice to hear your child saying things but lots of kids don't talk in complete sentences until they are 2.
And now he's getting some attention for biting.
It won't be a reward for biting, he will have it in his mouth and won't bite. So no biting will happen.
Whatever you decide will have an effect on the next outcome. Either he will bite less or he will eventually be looking for new child care and not having good results. Working with the care giver and trying to find a good compromise is good for everyone.