That reply is laughable...absolutely laughable. "your frustration is justified" and then later he says that you slandering them on the Internet is regrettable? A) it's not slander, because it's true. And b) they're hipocrites. You want to know how they should have handled it? Asked for the money back and delivered your item.
If the business can read this, you should be ashamed of yourselves and rest assured, if you would have pulled this on me, I'd be bringing legal action for breach of contract and misrepresentation. One of the advantages of being able to prepare your own legal work is that filing these actions is cheap. The customer and business entered into a binding legal contract, with terms clearly understood by both parties acting in good faith and consideration was given. The business failed to perform. Cut and dry.
"You'll Never Walk Alone"
"Psycho Murican" -- beeemerdude of Canada