Tell the buyer to return the item for a full refund.
If he returns it (he pays the postage), refund his entire payment. Put him on your Blocked Bidder List.
If he opens a Dispute, ask that the item be returned for a full refund. If he returns it (he pays the postage), refund his entire payment. Put him on your Blocked Bidder List.
If he does not return it, put him on your Blocked Bidder list and move on.
If he leaves negative feedback, you can ask that it be removed. However, you can also add a Response "Offered full refund on return. Kept item instead." which shows future customers that you are willing to work on honest problems but can't be pushed around.
Don't panic. If you have a specific problem, the busybodies here (myself included) will be happy to give you advice, support and honest opinions.
