Part refund/ returns/ feedback

Thought I'd logged this but apparently not ....Just like to know how/whether to respond to a buyer who is refusing to return an item which she says has a defect?

I originally offered a 2.00 part refund ( on a 12.00 free postage new without tags item) which they refused. They asked for a refund to cover cost of professional repair! I offered full refund on return, but they don't wish to return the item. After weeks they've now contacted me and want the 2.00 originally offered so they can leave 'appropriate feedback' . I think they should return the item if it's defective for a full refund, or retain it. How should I respond - and can negative feedback be removed?

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