Personally I would block the buyer, then I would make sure that blocked buyers couldn't contact me. The buyer's only means of communication after that would be to actually open a case.

If the buyer has a habit of abusing the Money Back Guarantee eBay may have already restricted their ability to use it; that might explain why they're so reluctant to open a case. If they did open a case you would need to ask them what the cost of a return label was (or even better - find out for yourself) and only send an amount that would cover the cost of a return label. If the buyer didn't send the item back they wouldn't have any way to obtain any further funds back from you.

In my opinion their first warning shot was when they asked for a price reduction prior to purchase; especially when "best offer" was already enabled on the listing. @major-d-clutter - what does their "Feedback left for others" look like? Are there any red flags (or rather, red dots) there?