I'd be inclined to think the guy was trying it on. Lack of evidence, not forthcoming about alterations in pictures and a high quotation for repair just smells too dodgy to be true.
Admireable for you returning some money, its a very noble thing of you to do.
Next time, ask questions, give very little info and be cynical from the start. Most people in the world arent as nice as you appear to be. GD on here is filled with people who've seen this for themselves and the advice is normally sound.
I'd imagine it actually went something like this:
Rewired plug, blew psu, realised his mistake so claimed as damaged thinking you'd get money from courier, backtracks when you point out mistakes and then says no need to cover the costs when he realises you're paying out your own pocket.
If you get a payout from insurance the £400 quote doesnt affect anybody except the faceless courier corporation. He does seem like a nice guy so probably felt guilty when you offered to repay out your own pocket.