@Laura2592 In business, the wise decision is not always a question of who is right and wrong. Hopefully, we make the decision that best suits our business in the long run, not the decision that makes us feel righteous.
In this particular case, had the host indicated that if the guest canceled, she would either refund xx amount of money, or refund any days that she was able to re-rent, that might have appeased the guest somewhat. Again, the host has to weigh the cost of a bad review, vs. the cost of the dollar amount of any refund granted.
In this particular case, the host got lucky, because the guest sounds like a lunatic and was not able to post an even moderately coherent review. Had it been otherwise, that review could be costing the host a whole lot more than the payout she received.
Citing the example of your guest who came down with the flu, your humanity kicked in in wanting to let them stay, when of course you couldn't because you had other guests coming.
Approaching with kindness is an excellent philosophy that I wholeheartedly support, but sticking to the rules isn't always a long-term benefit to the business.
In the same way that many businesses take returns without question, even though customers frequently lie about the reason, amount of use, or how it broke, they are weighing the cost of the return against the cost of losing that customer. Again, my two cents. Kia