I'm fine with this free figure solution.
Whether it's a new figure (unlikely) or a duplicate of a figure that I already have, hey free is free. If you don't want it, sell it. Even if you only make $5 off of it, it's all profit! Anyone who doesn't want the free figure that they receive could maybe help out a fellow fan who may have a gap in their collection, or maybe even put it in a Toys For Tots bin or something.
This would be the perfect opportunity to unload any customer service stock that they might have of past sub-exclusive figures, which I assume they must have at least some amount of. They don't want to sell it to fans in general because it would upset sub-holders, but to use them as an apology item for subscribers would be perfect. I don't think anyone would complain about an extra Shadow Weaver... there's a figure that would be easy to unload if you didn't want to keep it. I personally wouldn't even mind an extra Preternia He-Man.... I don't really care much for the figure, itself, but I wouldn't mind an extra Cosmic Key!
And/or maybe some of the figures they send will be some of the more highly demanded ones like the first version of Teela (it's unlikely, but not impossible).
But to be honest, regardless of whether the figure is one of the rarest/most sought after or one of the most common and/or least liked, at the end of the day, it's a free figure. Yeah, the screw up with Frosta's arms shouldn't have happened, but it did and it was relatively easy to fix (I already did with mine). I really see no reason to complain even if this is just an excuse to unload some old, lingering stock.
Based on both past screw ups and just the general limitations that Digital River seems to have compared to most other online retailers, I doubt that their system is intuitive enough to discriminate between the subscription of someone who kept the figure and the subscription of someone who sent the figure back. Things like returns and refunds are typically entered into the system processed manually. I doubt that their system is set up to "flag" and identify the subscription of someone who sent their figure back compared to someone who didn't (they can't even seem to combine separate orders placed on the same day into a single shipment).
So, most likely all subscribers are getting the free figure regardless. Personally I think it's a moot point anyway. I'm guessing that anyone who did send her back likely didn't get the shipping refunded (Matty/DR doesn't usually refund the shipping), and there probably aren't that many people who bothered sending her back anyway. I would think most wouldn't want the gap in their collection, regardless of the fore-arm issue. The few who possibly did might be those who didn't want her in the first place, but subscribed anyway just to guarantee the figures that they do want. Anyway the point is that the people who actually returned the figure are likely so few and far between that not very many people are going to get a free figure on top of having sent her back. And it wouldn't be worth DR's time to manually go through each and every sub just to make sure they don't send a figure to someone who returned Frosta.