Yes, I have turned down work that I thought I was not going to perform 110% better than expected. A gunsmith should only work on something that they feel very confident that the firearm or part meets or exceeds the safety standard and the wishes of the owner.
I would probably take trade for work, but I would prefer money as later on if there was an issue and I was going to give a refund, it would be easier to handle cash as the client may want back what you have traded or sold out.
As the the license. The ATF has stated that gunsmithing does meet the requirements as a dealer. You can research it for yourself below. If you are in the buisness of gunsmithing, I would be pro-FFL, as most of the time you get discounts on parts you may need. The discounts can add up to the cost of the FFL in a very short time depending on the amount of business you do, so it is somewhat cost effective.