I agree with the responses, that the seller really probably did not know.
He is probably surprised, really. What Steve (I think) said, about most people just seeing old wood with dents and hollows, and not being attuned to it being critters.
I think quite honestly it was an honest mistake. Ron, I think you said before that you tend to be a push-over. I totally understand that! I am also. Sometimes, when a push-over pushes back, sometimes it is tempting to to so with great force. I totally understand if that is a feeling that you have now. (Been there myself, too!) However, I really truly echo the others here, that the guy selling it -probably- just thought it was a funky antique look, and really did not think of infestation.
If it were me, I would suggest a reasonable partial refund; possibly half price? I don't want to muddy the waters by talking about $, but I think you are great with your hands and you can probably build something nice to pay hommage to the lovely machine.
I think the most important thing to end up with is a Good Feeling about the machine. I really think it is best to assume that the seller was not out to cheat you; or else you will have an icky feeling about the machine.
That is just my opinion, of course.