Reverandfunk - the buyer should NEVER be out of pocket in the circumstances you describe - all associated costs should be refunded.
If the buyer simply doesn't like it, or it doesn't fit, then he should expect the actual item cost ONLY to be refunded if the seller agrees to refund.
This applies only where the seller is not a business. If the seller is a business and the goods were sold on a Buy It Now format, the Distance Selling Regs kick in. This gives any non-business buyer the right to return the goods for any reason and get a full refund including postage costs. It is not clear if return postage should also be refunded in these circumstances. Of course if the goods are faulty or not as described then all postage must be refunded.
These Regs do not apply to goods sold by auction listing format.