What's the App Store refund policy?

Well, in my point of view, if the app works 75% of the time playing AVI files, I would try to contact the developer directly, there might be something required (like a plug-in) or a bug that needs fixing. Like it says in the FAQ, if contacting the developer produces no result, then I guess you could ask for a refund.

I have heard that they gave refunds to people who were unhappy before, but it was a last-resort solution if I remember correctly. Also, I presume the App store staff will fight for you more if you paid 100$ for your app, and a little less if you only paid a buck... :-)

My experience asking the iTunes App Store for a refund:

Went to my account in iTunes, found the purchase and clicked on Report Problem, filled in brief description, (I had clicked on the wrong item when purchasing.) They responded immediately, had already looked at my records and found I had not asked for a refund before, and credited my account.

So whether you ask for refunds a lot is a factor!