I want to make sure I'm doing the right thing since I'm still relatively a newbie in terms of amount of trades/posts etc. Would you recommend I refund in this case?
Kc1990 makes great points. If I were in your situation I would most likely tell them that whatever happened to it is on them. Even back in the day before d2r the way the game worked is a dupe rune used to make a new runeword would not cause the runeword to get wiped by dupe detection. So if you had everything legit except maybe the vex then that still wouldn't make sense here.
Also I haven't heard of any dupes on d2r yet nor of items going poof besides that stash storage size issue causing some items to poof that Blizzard seems to keep turning a blind eye to.