All sides are on the losing end here.
I can emphasize with both parties here. Kho King, if he takes up responsibility of the fried CCD, would in effect be selling a S2 Pro for $800-ish. Jay has already got a dead S2Pro on hand with a big repair bill. By paying the repair bill on his own, Jay can in effect buy a new DSLR.
In such a case, who would want to be on the losing end? No one, obviously.
But as the saying goes, sh!t happens.
Jay keeps mentioning the gentleman's agreement, probably grasping at straws in the hope he doesn't have to pay for repairing it, whilst Kho King is at least prepared to make good part of the repair cost. I don't know the motive of Kho King starting this thread, whether it is because he is genuinely distressed and unsure of what to do, or because he wishes to rally popular support, but this is a good thread to discuss issues like this, especially with the huge amount of equipment changing hands on the CS Forums daily.
But as I read this thread, I am beginning to wonder if Jay has somehow thought he had managed to wheedle a 1 month warranty out of Kho King when the original stated warranty period was 7 days? Instead of a stated warranty it had become a gentleman's agreement, but in Jay's mind, no less binding in terms of responsibility.
Though it exists in other industries, such as for automobile (3 years/100,000km, whichever comes first) warranty, as far as camera products go, there's never been such a warranty, for it would be hard to quantify usage. But even for cars, there is a timeframe where the warranty expires. In your understanding of warranty does that mean a 1 year of use warranty? Try alleging that to the servicing centre that you bought a camera more than a year ago, but did not use it at all in that period, and would like your one warranty to begin from when you started using the camera. That would be ridiculous wouldn't it?
You claim that you would accept returns/refunds on faulty items you sold, are you saying that in an effort to prove your righteousness? It might bite you back sometime down the road if the guys you sold stuff to a few years ago decided to take up your offer.
I shan't even mention the part about testing something thoroughly before you buy it, but just say, caveat emptor.
At the end of the day, if Kho King chooses to pay part of the repair, take it as a bonus, Jay.
To use an real life analogy:
Yesterday I parked my car on the roadside, and when I came back, the left flank and rear door was dented by some son of a bitch who couldn't drive or park his car properly. If he was nice, he would have left his details for me to claim damages from him, but he wasn't. I wasn't around, so it was easy for him to just drive off and fix only his own car instead of footing my repair bill as well. So, for doing nothing wrong, I now have a dented car, and have to repair it out of my own pocket.
Sometimes, bad things happen out of no one's fault. If it has to befall you, take it on the chin, and move on. You can't always hold Kho King responsible for the camera he sold to you.