Yes, the pup could have pulled up the testicles when the judge tried to feel for them. First thing I would do is make sure you know what you have got.
A good way to find the missing testicle (providing it is actually there) is this: Have the pup sit on the edge of a table with the tail hanging down and so that there is enough room to reach under the dog from between his legs and up its belly. Have one person hold the pup, while the other looks for the testicle. To do that, put the index finger and the ring finger of the same hand on the belly with the dogs penis inbetween each finger. With gentle pressue push the hand/fingers back and down towards the tail right alongside the penis. The dog needs to remain seated while you do this since in this position he cannot pull the testicles up inside the body. As your fingers come towards the tail a retained testicle should push out and you can then feel them both in the scrotum. If you can feel both keep doing this once a day until the dog is at least 6 months old. After 6months of age the tissue surrounding the testicle should have closed enough, making sure it will then outside the body.
If you cannot feel it... I would still wait. Could be that you just cannot find it. A vet might though. Do let the breeder know what is happening and try to keep lines of communications up and stay civilized about it. It seems as if you have a good sense of humor about the whole thing, that will most certainly help. You should find the breeder far more cooperative if things stay friendly.
If the testicle does not materialize it needs to be removed. Retained testicles can cause cancer down the road, but it is not an immideate threat to the dogs health. Let the dog mature a bit more so that he has developed proper male characteristics before neutering. If you want to keep male features intact into adulthood you can have the one retained testicle removed, but then a vasectomy done on the testicle that stays is a good idea so that your dog will not breed by accident. Few vets will remove just a retained testicle though and will want to go for a straight neutering.
Yes it is a disqualifying fault, you will not receive a passing show rating with a dog like this, nor should it be bred. Replacement depends on what agreement you have with the breeder. And it might mean that you have to return the pup you have now. Pups can have both testicles down by 8 weeks and then go up again. It happens. You can still do SchH with a dog that is not breed worthy or neutered. He is not a "worthless" dog just because he does not have all his family jewels. Reality is that as a newbie virtually no outsiders will likely come and breed to your dog even with titles. If you had planned to use him for your own breeding program one day, different story, but keep in mind that you can use other peoples stud dogs for that. If you like him, and that testicle does not drop, he may still be a good dog for you. You can learn about SchH with him, and at least that way won't get upset when you make training mistakes, which you will make. The first SchH dog usually never reaches anywhere near full potential because both dog and handler are green at this and make mistakes together. The next dog will benefit from the mistakes made and the added experience you have then. Also keep in mind, that with a 4 1/2 month old pup, even if it was correct at 8 weeks there is no telling if he will be stud dog material at 2+ years. You still have to see if all teeth come in correctly, and the bite is alligned properly, if ears are up, if the dog matures to proper size, if he moves correctly, if he can indeed do SchH, etc. You would have a long way to go regardless.
Hope it works out for you.