One thing occurs...the original item description, did it mention the condition of the item, whether it had been tested, whether she knew it was working or had not tested it?
That may hinge your verdict on getting a full refund or not. I suggest you check all the fine details of the auction before you refuse her offer, as, if she stated she didn't know how it worked or couldn't test it, you essentially are responsible, and the partial refund may be the best bet, but if she made no mention of it at all, then you might be able to get the refund you want.
It SOUNDS from her reaction that she didn't write that in the auction, but check it, just in case it's there.