Well, until this post I'd never even heard of powder worms - and I'm 53 years old!
I personally think you got a very good response from the seller, and hopefully the seller will have learned a lesson and will look for items like that closer. I've bought machines and cabinets from as far away as GA - and never thought to look them over good for insects before bringing them into my house - so I figure I've learned a valuable lesson the easy way here.
I think you've gotten lucky the seller is willing to work a deal with you so you can keep the machine and get a discount. I think if you let eBay decide, they will tell you to ship it ALL back at the seller's expense. Anything else you want would probably require you to take the seller to civil court. I don't think eBay is going to take any emotional suffering into account.