Tell me your opinion please, and be honest, was I wrong for not letting her have Chester??
Absolutely not. You were absolutely right in detecting a bad situation.

The rules:

If they can't afford the fee, they can't afford the vet.
If they don't want to pay the fee, they won't take care of him when the need arises.

He's not a stuffed animal. He needs someone who will baby him.

Returns are so hard. But...he came back to you and was not abandoned, and THAT IS THE IMPORTANT THING!

Good luck to you and Chester.