@Akambi0yes, Airbnb can fully refund the guest in case of extenuating circumstances (illness, death in the family, etc..) but the guest should prove it.
Without extenuating circumstances, Airbnb can (and do) try to convince the host to give a full refund despite his strict/moderate cancelation policy but if the host refuses they should honor it.
I have to tell, I am not surprised. Today I've seen another post where the guest contacted Airbnb, said the dryer was broken and was refunded 20-50% of his stay. Airbnb informed the host AFTER the refund was already deducted from the host's payment. By doing this Airbnb went against his own TOS.