Long story short I went to return something to Amazon in the usual way and got the message "Keep it, it's on us" and told not to bother returning item and they'd refund the order anyway. Anyone had this happen before? I must admit I'm still feeling a bit "WTF" about the whole thing, not that I'm complaining mind.

Is it a low value item (eg CD)?
Shipping and restocking costs are probably more for them than the wholesale cost from their supplier.

PC World Business once told me to keep a box of 10 mice they sent incorrectly. By the time they arranged a return and put it back in the warehouse it just wasn't worth it for them.

I ordered a pair of lap trays - the things with cushions on the bottoms so you don't spill your dinner in your lap on the sofa.

One had a split in the cushion. I took some photos and informed the marketplace vendor. They sent out a replacement one, no quibble, and didn't want the damaged one returned. The upshot is I can repair the damaged cushion, so we ended up with three trays.

I gave the vendor plenty of good feedback by way of a thank you.

I had a phone call from a client once asking if I wanted an Ikea wardrobe. He had ordered one mail order, but they sent the wrong one. He called them to complain, an they told him to keep and AND they would send him the right one free. I was cheaper for them to let him keep it than it cost to collect the wrongly delivered one, restock it and pout it back in inventory.

Lakeland have done that a couple of time when we have ordered something and its not quite what we wanted (its hard to tell sometimes fom the photos). We have generally given the items to a charity shop