PAYPAL Dispute!

Hello,

Someone contacted me over PayPal for a product I sold. I explained in the "buy information" section of my site how the website worked EXACTLY even down to how it works in the database and all my scripts.

This person contacted me saying the service is the exact opposite of what the were looking for.
Here is a quote: "The service provided was the complete opposite of what I am looking for"
Should I refund the 5$ even though they received the product?
Or should I say it's too bad and they already have the product and such and they should have read the great explanation on the site.

I kind of already screwed this one up because I offered a 4$ REFUND! I'm an idiot I know, But hey, its my first customer got to make an impression right?

I had a first PayPal dispute this month and I was sure PayPal will refund the client but it didn't. The dispute was on a brand new account (400 $) and PayPal decided in my favour because it was a software ...if I knew I would never refunded other orders from a different account

Offering a 4$ refund for a 5$ product/service sounds really cheap IMO. It's only 5$ and since it's your first customer you want to build a good reputation. Personally I would refund him right away and try to find out what he really wants.

The customer wanted the product (proxies) with more information. They wanted to be able to choose the country and anonymity, We have settled on a deal. I said I would take four days tops to write the scripts and such for my site to make this possible. Even though this occurred they said they'd be happy to buy more than once a month! Thats awesome!
Thankyou guys for the advice so far...
Am I making the right choice?