I think the "second chance" feature on eBay is flawed.
When a non-paying bidder screws up an auction, the 2nd chance offer should set the price to what would have happened if the first guy never existed. Otherwise, that person is still artificially increasing the price, which the 2nd place bidder perceives as unfair, and makes them suspect shilling.
In other words, eBay (with the seller's permission) should offer the 2nd place bidder here a price of $411 (not $820). That's what the price would have been if the NPB had not been involved*.
I don't think eBay has any proper implementation of this though, so it might not be safe for the seller (or buyer) to try to arrange the pricing themselves. Unfortunately the suspicion that this situation creates may deter the 2nd place bidder from even bidding the next time around, and that unfairly hurts the seller.
Unfortunately the deadbeat doesn't face any repercussions if it's a mutual agreement to cancel. However, I don't blame you for agreeing, I'm sure I would have done the same. Refusing the cancellation and opening a case would have been risky, because you'd be forcing his hand into a hostile transaction. That would be bad news - it's dangerous to get into a transaction with someone like this. But it would feel a lot more just if they got the mark on their account that they deserve for screwing up an auction.
* = not entirely true - in the absence of the deadbeat, somebody else might have entered the bidding. But it's still more reasonable than the current system, and the seller would still have the option of relisting it instead.