The 1099 panic is just totally and completely uncalled for, there's no reason to think Etsy's systems would erroneously report reimbursements as income on 1099s. After all, my work issues me both paychecks and expense reimbursements and when I get my W-2 at the end of the year only the paychecks are listed as income, it doesn't include the reimbursements.
And even if your 1099 was incorrect, that doesn't mean you'd suddenly owe taxes on the incorrect amount, you'd just report the error to Etsy for them to fix.
Generally reimbursements are not income.