I absolutely think you did the right thing Ken. I was hoping you would stand strong and let the case play out. There was nothing to worry about here. A buyer made you an offer, you accepted, and then they failed to pay. If buyers are issued an unpaid item strike, they are not allowed to leave feedback. The system automatically prevents it. Think about it, how in the world are they able to leave feedback for a transaction they did not even pay for?
As a seller, if it's not likely to cost you $100's of dollars, it's usually better to just swallow your pride, give the other side what they want, and move on.
I really, really disagree with the above statement. I have always provided excellent customer service but I have never believed that the customer is always right. In this case, they were not. They failed to pay for the item they made an offer on. No problem with that, but I would not have cancelled this transaction. Again, if they do not pay, eBay will give them a strike. There should be no fear of negative feedback b/c they will be blocked from leaving feedback. I refuse to give in to customers that think they can do whatever the hell they want and will not contribute to further enabling buyers to think this way. This is exactly why some customers do this kind of stuff; unfortunately some sellers feed their habit.
Great job Ken!