Saw a reasonably priced refurbished Coolermaster M520 PSU (520W) with a power efficiency rating of 80% plus, will this use less power than a standard cheapo 350W PSU ?
Is there a penalty to pay for choosing a PSU with a much higher output than your system needs?
Yes the quality one would likely be more efficient than the cheapo one, unless the cheap one has a 80+% rating somewhere too. The quality one would also supply a lot more power if you need it. As for penalties for getting a high power one I don't think there are any, it will just operate at lower load. The 80% rating is obtained from the efficiency levels across the range of loads (I think at 20, 50, and 80% load but I may be off on this).
However, not really sure I would like the idea of a refurbished PSU...