Based on their last email message including further allegations, and an attempt to extort $150 from you or they will open a paypal claim , I personally ( so this is the way I would go, but do not expect anyone else to) would politely indicate to them that you would only consider their request if they open a paypal claim for this partial refund - as you are not comfortable refunding outside of the formal dispute process.

If they don't open a claim - the only option they have left is to continue to harrass you which can be reported to ebay, and leave you negative feedback - which is unlikely to be removed.

If they do open a paypal dispute (and they don't immeadiatley escalate to a claim - which they can do)  - you can consider the comments they provide via the resolution centre and choose to do one of three things:

- offer a partial refund

- offer a full refund on return of the goods to you

- decline to refund anything and the dispute will automatically escalate to a claim  - (what I would do)

If the dispute is escalated to a claim it is likely paypal will put the funds for the sale on hold - if you do not have that amount still in paypal the account goes into arrears, and until it reaches a positve balance again - (through other payments received or through resolution of the dispute).

If they win a claim they will have to return the camera back to you by trackable post to get their refund.  They can still leave negative feedback.

If you win  a claim - funds on hold are restored to your account - and they can still leave negative feedback but you can seek ebay remove that feedback as the paypal dispute was found in your favour, which is one of the reasons that ebay can remove feedback.