[bartonfink]

I'd ask them for more time, emphasizing that you won't be starting the internship for months anyhow, so a small delay in your acceptance won't hurt them. If they insist on knowing in the next week, then I'd recommend accepting but continuing to interview and using your original "offer" as leverage however you need to. If you find something more appealing, great - take it, and then tell the original company that you're sorry but you can no longer work for them. If you don't find anything better, then you're taken care of with the original acceptance.

As far as ethics are concerned, the company who issued the exploding offer is putting you in a bad spot and they know it. They're forfeiting their right to ethical treatment by not showing you the same.

[angdis]

Right on, the timeline seems aggressive for a internship that won't start for months. It is understandable that the company would want to get commitments and perhaps it will be a great internship but they should have been more reasonable about the offer.

There is NOTHING wrong with accepting the offer and continuing to interview for other positions. If you find something better just apologize and move on. It happens all the time and if somebody holds a grudge about it, they are being an asshole and you probably wouldn't want anything to do with them anyway. Seriously.

Moreover, it is important to keep in mind that big companies (and sometimes small ones) have no problem whatsoever with abruptly derailing the careers of good employees just for short-term financial considerations. Loyalty goes both ways and sadly big companies have burned that bridge first.