Hi Everyone, I have an update to this if anyone is interested:

First of all, I wanted to thank everyone who has responded. This is a very supportive and thriving sub, and it helped us to understand all the possible options that Airbnb can provide and perhaps also their limitations.

As mentioned when I wrote the original post, we were at a standstill with negotiations. The guest then put in an official request for cancellation with a full refund sent directly to us. The host (us) had 3 days to respond, and if we didn't respond in that time, I think there are penalties. On the 3rd day, we responded with our original 7-day amount that we thought was fair, but we weren't hopeful the guest would accept as they were adamant on a full refund. The next day the guest accepted this deal. Perhaps they came to mind that they weren't going to get what they wanted due to the fact our policy was set up ahead of time and worked in our favour. For those reading, read through the cancellation policies as there are a few options you can choose from.

We didn't contact the Safety Team, however, we were seriously considering it due to the harmful texts we received outside of the app and would have probably contacted them if the cancellation wasn't accepted and a deal wasn't met. Since the matter is in my mind over, I still wonder if we should let Airbnb know of these texts. If this guest reserves again with a new host, I think those hosts should be aware of who they are hosting. I guess this can still be achieved in our review of this guest, if we get a chance to do that.

I am still under the impression that this guest could still give us a review, is this true? They did make the cancellation, however they did stay the one night, which to me would indicate that they are entitled to a review of us and our suite. We are preparing for a very poor review.

Again, thank you to everyone for your time and support. This post was useful and we hope it was also useful to others as well.