I agree with gigabit878. This sounds like the SIM card reader is shot. If it worked before you gave it to them and now all of a sudden this is happening, I would say they bent it while putting their SIM card in. You can try to restore the phone and see if it works. I just fixed a SIM card reader on an iPhone and they would randomly loose service and the only way they could get service back is to factory reset their phone. It would then work for around 6 hours and he would have to do it again. I noticed the pins in the reader were bent and that was his issue.
Definitely do not give their money back if this is the case. You could check it by using a light (if needed) and look inside the reader. You may be able to see if they are bent, but the easiest way is to disassemble the phone and look at the reader. There are like 3 pins soldered down, I have seen some where the solder joint was bad. Just look at it and you may be able to see if their is something off.
Lpaff they make little cheap tools that can do that exact job for you. I have one around here somewhere and it works amazingly.
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