Sorry to hear about your family member.
I don't understand many details of your description, partly because I don't know about PS4 or online gaming, and partly because some concepts and the sequence of events are not clear to me. However, I agree with Flyingron and Adjusterjack that the buyers aren't likely to prevail if they sue you.
Offering the buyers an extra amount, in addition to the $500, might be too generous on your end. What trouble/losses do they allege they've incurred? Depending on what they substantiate, you need to keep an eye on (1) whether their allegations are frivolous; (2) whether their actions constitute "unreasonable reliance" on whatever you've represented (that is, said) to them; and (3) whether they failed to mitigate damages. Any of these factors weakens their position in court. The fact that they've declined your offers of reimbursement and/or the reason why they didn't inform you about the "account issues" earlier might hint at their failure to mitigate damages; only you can discern these matters because you have more context than I.
In case they sue you, keep: (1) evidence of your offers to reimburse them, (2) any proof that the good(s) transacted was (were) in good condition while in your possession (the PS4, the account, maybe your credit card), and (3) a record of their communications. With (1) you'll stave off any claim of unjust enrichment; (2) will help disproving any allegation of "fraud" (or fraudulent representation) that they make against you; and (3) is relevant for whether they are frivolous or inconsistent.
From the details I can grasp, it seems to me that you're doing the right thing by proposing to revert the transaction (reimbursement in exchange of the return of the PS4), which is also known as rescinding an implied contract. By this I mean that you're in a safe position if they file in the small claims court.

