Is it bad for my credit to refute a charge for a purchase that the company won't allow me to return, when there policy is free returns? And does it make a difference how many times you refute a charge?

No. And I say refute it until they understand that you're not playing. I say give it the old college try and be prepared to go to the next level. Try Consumer Affairs. (that is usually my next step after my first attempt at resolving the issue). You should not have to bicker with these people and they should stand behind their name and product so they deserve no respect. Why should you be the only one suffering? Let them get pissed for a change.