As others have mentioned, you really only have a few choices:
1. Write your PD, with a return receipt, a letter stating that you are resigning from their program. You should review your contract to see what this means. You can either simply resign and not show up at all, or you could follow the requirements of your contract. Most contracts have a "notice" clause -- you must give them 2-3 months notice. If you send your letter today, the clock starts now.
If you simply tell them that you will not be coming, there is not much they can do. Theoretically they can sue you for breach of contract, but that's not very realistic and not worth the court costs involved.
Since you signed outside the match, there is no match violation issue to contend with.
2. Go to your program, and see if it's as bad as you've heard. Perhaps the rumors are wrong (although with your PD's comments above, I have concerns). Give it 1-2 months --> if disaster, resign then. Again, reviewing your contract would be helpful, to see how much notice you need to give.
3. Stick it out, no matter how bad. Transfer to a new program as a PGY-2. However, there is no guarantee you will be able to find another spot.
There aren't many other choices, that I can see:
1. Expose yourself to XDR-TB or another highly virulent, contagious, and fatal illness.
2. Arrange for a felony conviction prior to the start of residency.
3. Screw something up such that you don't graduate from medical school.
All of these have serious downstream problems associated with them.
All of this needs to be weighed against the concern that, should you not go to this PGY-1 spot, you will need to work to find another. If you are a competitive candidate, then you shouldn't have much problem. If not, you will need to decide whether a bad residency program is better than no residency program at all. Not an easy choice.
