Why not just tell the client that the project never got far enough along to require hosting? Does the money he paid cover the amount of hours you already put into it? Is it over, or under?
Hell as far as I'm concerned, you did work so you get to keep the appropriate amount of money, and since the site legitimately wasn't ready to be hosted, there's no shame in telling him that.
Don't fret about pleasing this guy - a good business person knows when to tell a client to screw (in kinder terms). You don't need this guy to like you at this point. Keep whatever money you legitimately earned.