I've already voted 'no' in the poll, because I don't believe a refund is either good business practice for the LDS or - more importantly - conductive to turning out safe divers. The 'refunded' student can simply bag her money and spend it at a less discerning dive shop.
The best alternative would - if possible - to continue training, either at a pro-rata rate, or - if you're really willing to refund the money anyway, continue the training further but on the understanding that she may not receive a c-card at the end of it all. And that this is in her best interest, it's her safety and well-being on the line.
If it were a PADI diveshop, you could always offer her a Scuba Diver certificate instead and explain the limits to her. This would severely limit the types of dives she's doing and - if properly enforced - will prevent her doing dives on her own or with an unsuspecting non-professional buddy. She can then always return at a later stage, if her deficiencies have been corrected and complete the OW course with you.
These are generalities. Certifications should of course not be handed over to divers who aren't qualified in the instructor's eyes.
However, I'm a bit surprised at the exact nature of her problem which prompted your question. Which training agency requires their students to be able to kick strongly enough to be able to orally inflate their BCD:s? Wouldn't it be better to stress to her that she should really be correctly weighted, i.e. not overweighted so that she can accomplish this task more easily (yet still be able to descend normally)?
Of course, if she's terrifically obese or so, I can see the problem. If she's actually physically handicapped, I can also see the problem at hand, but there are excellent dive training agencies about for people with quite severe handicaps.
In all other cases, perhaps she could do exercises to strengthen her lower body and legs? Or practice her swimming techniques?