I agree with Garrett and Jeffham29
If it is possible that the item might have been damaged in shipping due to poor packaging, just refund the money, not the shipping. He pays return shipping, you wait to receive and test before making payment.
I have had products arrive non-functional. I never assumed it was a deliberate thing, but I do expect that they take care of it. Why would I buy a non-functional item? Nothing is cheap if i can't use it. I had a drive arrive non-functional, but I managed to get the manufacturer to replace it, so that was fine.
In the alternative, you might want to suggest that he take it to a reputable repair shop for a quote and then discuss it again. Make sure you call the repair shop yourself to get the direct info on what is wrong. You might be able to negotiate something around the repair costs (like splitting them, so the deal remains the same - you both still make/lose the same amount) so he has a functional unit.
If it is just little guy to little guy, try to take care of it without animosity. Your rep is all you have, and it was the little trades that ebay was supposed to be all about in the first place. There is a lot of trust involved in using the system; don't just accept his word, but don't take advantage of it either. Saying "too bad" may be a legitimate "buyer beware" justified response, but it violates all the suppositions of an auction - particularly that people are not trying to steal and rip us off or that we are not buying other people's trash.
Try and do the right thing and make the transaction FEEL fair to you both in the end. Communicate. Negotiate. Celebrate.
