internally balanced 360 crank (BIG PROBLEM) need input

You're only 24 - welcome to the wonderful world of reality. This is why those who have been burnt (me too - decades ago) give advice about finding a good shop and paying what they charge. It's BS in my opinion that he offers to refund the balance work. The shop that did the balancing should refund the balance costs to the builder. The builder should refund the balance work, all the required replacement parts costs, and at minimum the assembly costs to the customer (you). You are walking out with a machined block (how good - who knows but it was running well by your own admission) and heads and some reuseable parts. So 100% I could not see as fair. I also wouldn't give a dime for install unless I knew you paid someone to do it the first time.
take the cash and walk - find a better shop and call it lesson learned. It's not worth dwelling on - it's just money and you'll be tossing a bunch more around in the future.