Exactly, so you got the refund and won't get the item (because Royal Mail will return it if/when they find it).
Except the latter doesn't happen, it literally said - 'item may still be delivered after refunded' under the 'sorry its running late' info, it normally still turns up just late.
If they did want to make sure of returning it themselves, they could have processed the late delivery request when I clicked for it at the end of tuesday giving them 2 days to get it back from Royal Mail.
The second person on the phone fully agreed and said 'if it does turn up today you can just keep it and the refund and not send it back'.
'Guaranteed delivery' means its guaranteed to arrive by that date, or at most within two working days after under Amazon's own Prime delivery policy. If its more than two days late they advertise and offer a refund, regardless of if the item still turns up later or not. You can't go advertising such a refund policy and then not offer it.
Similar to how Asda offer a refund AND replacement if you are unhappy with any of their products. This isnt a legal requirement but they offer it to try and 1 up the competition, but then if you try to go to an Asda store, most of the employees don't know about it and still try to offer a refund OR replacement instead of both.
If you clearly advertise such a policy you have to deliver it.