Since the processors are on the other side of the board, yes, that is what would be seen of the heatsink.He just answered he did use the heatsink with thermal paste and sent me this pic...
http://www.powerbookmedic.com/xcart1/images/D/IMG_0718L.jpg
I highly doubt the guy is trying to make a living off scamming people on replacement macbook parts. He demonstrated it works as far as he can test it, he took the return when the auction stated otherwise. From the seller's perspective he has no idea how competent you may be at repair, if you are using it in the right model, etc etc. So it isn't necessarily fair for him to be out either.
Personally I would have returned half the shipping out of goodwill and customer satisfaction, but that is neither here nor there. Ultimately you are trying to repair 9-year old hardware with 9-year old parts, and any number of things could go wrong.