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That is where the miscommunication came in. He took that as 'Can I buy it', you took it as 'Can I have it for free'. When I read the convo, i took it as 'can I buy it' as well. You would make money off his work by using it, I don't see why it would be unreasonable to pay him for it if you liked it and wanted to use it.
Personally, I think you shoudl request he remove your photos if you don't want them there, and be more careful in the future. From a third party point of view if I ran into that design without knowing the backstory, it sort of looks like you ordered a site and then decided not to pay or something. As for him, he should just buy up a couple of photo sets for use in his future designs.
I absolutely disagree with him having any sort of dark intentions here. I don't even know the guy but as a developer I know how playing around in photoshop can come out to something really cool looking by accident.
If you like it, work something out with him. It's not unreasonable to pay for something that you think will make you money. It is unreasonable to expect someone else to work for you for free. It's nicer then your existing site in my opinion. I doubt he will see $2k for a premade template when it costs less then that to get one custom done...
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