I think you have two options.
If you want a full refund, you should open an Item Not as Described case with the seller and carry it through. Be aware though that you will probably be required to ship the item back to the seller using a tracked shipping service, which can be costly. Also be prepared that there is a chance you could lose the case (it's hard to prove the existence of a bad smell or mold, whereas damage can be shown with a photo). The fact that you have now cleaned the item shouldn't matter in terms of returning it; in fact you've improved it from its original condition. It sounds as if this seller is not amenable to giving you a partial refund, which is unfortunate -- this would have been the smart thing for him to do.
If you'd rather keep the garment now that you've cleaned it, you can forget about opening a case but still leave negative feedback for the seller, for example: "Garment moldy, smell not disclosed in listing, refused partial refund" or something to that effect. This is probably what I'd do, since as I said, proving an item smelled musty is difficult.
In my view there is no excuse for not disclosing musty or moldy odours in a listing (or any odour for that matter -- many old garments can carry smoky, earthy or old perfume-like smells). I've even come across antique skirts that had the distinct odour of 100-year old dry horse manure on the hems -- for obvious reasons! Simply saying an article of clothing is in the "original condition" and unwashed is unacceptable if there is in fact an issue. If a seller can't clean the item, he should disclose the issue, and let the buyer decide.
However, it's certainly not true that just because a garment is 100 years old, it will be musty, etc. Your seller was completely wrong in saying this! What he had was a garment that probably came out of somebody's basement or old, damp cupboard or box, that he likely knew would not sell if he disclosed the moldy smell. If properly stored, an antique garment should have no bad odours.
By the way, I should mention for anyone who might be interested in buying antique clothing, that there is a very unique but subtle "old textile" scent to true antique garments that is normal, and not at all unpleasant, and that antique clothing collectors love -- this is quite different from a musty smell! Also silk has an intriguing, distinct scent of its own that some find irresistible, and that lovely scent will stay with a silk garment even after 100 years or more.
I wanted to add a word about cleaning vintage garments. I do sell such items, but if I can't justify the cost of dry cleaning, I hand-wash them (if they're washable) in a perfume-free liquid soap. These type of laundry products are available everywhere. Many people these days have allergies, and many people have a very strong negative reaction or even aversion/allergy to perfumes, so it's safest (as a seller) to avoid such cleaners completely.
Incidentally, the "perfume" in Downy and most other scented commercial laundry products is not a natural perfume such as lavender oil, rose oil, etc., but is an ester-based chemical synthetic that has been implicated in health issues, especially for children. I thought I'd mention this because many people believe that using fabric softener sheets to give a pleasant smell to clothing is a positive thing. It's not -- it's far better to simply wash the garment in unscented soap and (if possible) hang it outside on a sunny, breezy day for a half hour to let the UV freshen it. If you do this, just be sure to the vintage garment inside-out to avoid sun bleaching.
As for laundering or dry-cleaning true antique garments, that's a different and much more complicated discussion. My personal view is that no attempt at all should be made to clean a silk garment over about 80 years old. Antique cotton or linen garments can sometimes be laundered without damage, but this has to be done with great care, based on the condition of the textile and trimmings, using specialty products and then only by hand. Antique wool garments can sometimes be dry-cleaned, but the risk has to be evaluated on an individual basis. It's also important to remember that many clothing dyes used 100 years ago were not as colour-fast as are modern dyes, and attempting to wash such garments can end in a disaster.
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