It is very clear that the listing is for a large shirt so she is definitely confused. I wouldn't bother sending it to her since she has stated that she wants a medium, not a large so receiving a large might send her over the top.
Have you considered phoning her? Sometimes talking to a person can help to make things more clear.
I'm sure that she can leave a neg if you refund but unless you have something similar that you can substitute, I don't know what else you could do. You should have a look at her feedback given to other sellers and if she has a history of leaving bad ratings, you can report her to ebay and perhaps get the neg removed.