I have a lot of sympathy for both sides of the coin.
As a host, I completely understand why you're upset. Furthermore, I can see how the conversation with AirBNB could be read both ways, and there was ambiguity in the use of the word "we". AirBNB issues the refund but it is funded by the host.
As a layperson, I can understand why the guests wanted to cancel their travel. While pink eye may not be contagious after 24h, it's just not worth the risk especially if the relative has a compromised immune system. It seems that it was confirmed by a medical professional. There could be more to their story.
On a personal note, I have a trip to Hawaii coming up today. As part of that trip, I invited my mother, and my husband is also coming along. My mother is currently visiting me in Australia from Boston. Due to different reasons, we were booked on different airline tickets. (My mom is heading back to Boston after Hawaii and I am ticketed to return to Australia). We rented an AirBNB for part of our stay and a hotel for the remainder.
Unfortunately, my maternal grandmother passed away unexpectedly last week in Boston. As part of figuring out our options, we contacted each airline and accommodation we had booked for Hawaii in case we had to go back to Boston instead of Hawaii. Every single one of them were nothing but nice and accommodating including offering refunds for non-refundable tickets.
My mother decided that we should continue with our trip instead of returning home to Boston. Therefore, we did not cancel. However, as a traveler, I am so grateful for the compassion and understanding in what was (and still is) a very difficult time.
I understand the inconvenience and need for the money. My mind-set would be that if they were telling the truth, hopefully this made their life a little easier. I would not want to be in their situation. If they weren't telling the truth then I hope karma bites them on the bum.