The question is whether you want to work at that firm after graduation. If not, the judicial internship could be better for your resume. Were I in your shoes, I'd recognize that getting a job out of (wherever you're at school--Hofstra?) probably isn't easy, so I'd be doing everything in my power to seal things up with the small firm.
In the end, if your grades are poor, the connection to the firm would be more important than the state-level internship. Even a District Court internship wouldn't make up for bad grades, whereas the strong connection might.
All things considered, I'd see if I could split.
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