I think it is reasonable for the Seller to request return of item before refund. Whether a licensed seller or not, normal trading rules (written or unwritten) dictate that item be returned before refund.
You trusted the seller before purchase by sending money in advance. I think you should trust the seller to refund the money once you have sent the item.
Having said that, I totally understand your anxiety - I have been involved in a couple of very similar transactions before (not with sellers on this forum) and remember that I was quite concerned the same thing you described would happen to me. Thankfully, return/refund went through without any problem.
If the seller is a long standing member with lot of positive feedback, it is unlikely that he would do what you described (unless he can prove it with evidence eg: serial number etc). Good luck!


