I think what you did was spot on and agree with Barto and Ariich. I myself use Amazon (Prime too) a fuckload and used it primarily to buy my PC components to build the one I'm on now (which was a few months ago, yay!). So yeah, having honest, unaltered reviews is a huge deal.
If the product was faulty and they merely gave you your money back; leave that review up and edit to say at least they refunded you. If they gave you a new product that was better, edit it and say just as much. If they did nothing...you know, so on and so forth. So I think that's pretty apropos.
The most important thing is that the customers aren't being duped simply because they gave you your money back or compensated you. I don't get the idea that compensation equates to the shitty product not being a shitty product if that was indeed the case. It still happened, it still needs to be documented and people still deserve to know. As for the ramifications of one bad review...totally and completely overblown. If he's a singular seller that is small time and is just starting, sure, it'd be tough to recover, but it's possible and quite frankly if the very first sale you make is shit, that probably says something. If they're even a mid size seller with more than a few reviews, one bad review will not (or should not) destroy them. It'll hurt, sure...as it should. Such is the way of business. Especially these days when we're in a mostly faceless online market.