Keep that message! Transcribe it and quote it in your further correspondence with them. The sale of goods act says you have to give them a reasonable chance to repair or replace it (like for like), and THEN you're entitled to a full refund. So you have evidence that you've upheld your end of the bargain, and now they have to stump up... The money, that is. Not credit notes, or vouchers, or any other pc world bullshit. Put it writing this time, something like
I am writing to claim a full refund for the XXXX I bought from you on DATE. The item developed a fault under normal use, and I returned it to you for repair on DATE. By your own admission, you have been unable to repair it, and I do not consider your suggested alternatives to be Acceptable replacements. I therefore ask, according to my rights under the Sale of Goods Act 1979, that you give me a full refund so I can buy a replacement product elsewhere. I look forward to achieving full resolution of this matter by DATE, otherwise I will have no choice but to refer the matter to the small claims court.
Ok, so you have to give them a decent chance to respond, like 4 weeks. If you haven't heard from them by your set date, register the matter with Money Claims Online
www.moneyclaim.gov.uk/web/mcol/welcome
This is uk gov official service for small claims. You do it all online. You have to be prepared to pay the small fee (£25 I think) IF it doesn't go your way. But your case sounds VERY clear cut... They will probably pay up after the first letter, or they almost certainly will try to settle up as soon as they here from MCO.