First of all, I love your work! I will definitely be looking around your shop after I respond. :)
I agree that it's pretty insulting, especially for something that's so cheap already! If you really feel that strongly about it, I would politely explain that you have lots of fees you have to pay, and that it's very difficult to do at that price. I also sell really inexpensive stuff, so I agree that sometimes it's not worth your while.
On the other hand, I don't think the percentage of fees will make a huge difference on something so inexpensive, even though you will still have to pay the listing fee. Just as long as you make sure you're getting enough to at least pay yourself some for your hard work!
I'm not very good with customer service though, I've lost a few sales standing my ground... But in the end, I knew it wasn't something I wanted to do, so I was okay with it. Wish I could help more!