update: release button doesn't seem to be actuating the unlock mechanism. Is there a way to manually disengage the headrest?
I had the same problem on my Jetta, and if you pullup hard on the headrest it will come out with the base on the side that is jammed. Remove the plastic base from the shaft and there will be a little metal piece protruding from the shaft. Gring that off and you will be able to put it back all the way down. The downside is the headrest will not work properly, but who the phuck really uses them anyways.