As for the comment about them doing the right thing.. I don't agree. I had to pay before they sent it to me. I feel they should refund before I send it to them.
Unfortunately, that's not how things work. As a seller on eBay, I will not refund before I get the item back. I don't know any others that do either. In fact, when buying from any online retailer (Best Buy, JC Whitney, etc), they will not refund your money until they receive the item back.
In fact, when returning an item to a brick and mortar store, you generally hand the clerk the item back before he hands you your refund.
The seller in this situation has done the right thing.