Our shop passes on sign projects somewhat frequently. The most common thing is installation jobs we just can't fit into our schedule and/or the customer wants too much PITA red tape paperwork and leg work to go with it. We're not desperate for install jobs, but some of those kinds of customers act like they're our saviors or something. Oh, and they don't want to pay squat for the work either. So, yeah, it's easy to pass on jobs like that.
It's rare we'll decide to never work with a certain customer permanently. Usually we'll refuse work or stop work on a particular job on a project by project basis. If we reach an impasse the customer has to find someone else to finish their project.
We've all been through customer abuse of the design department repeatedly. I think two factors (among others) contribute to the problem. One: some customers don't think doing graphics work on a computer is a real job. They think it's easy and that the activity is artsy-fartsy play time so they don't want to pay for that kind of work. Two: too many customers believe the phony depictions of computers in movies and TV shows. Just rattle some gibberish into the keyboard and "poof" the job is done instantly. There shouldn't be any problem with endless revisions and delivering those revisions instantaneously. Not unless Hollywood is lying.
We have a recipe of certain computing tasks that will involve design fees. We don't do pixel-to-vector logo conversions for free. Vehicle wraps often require a design deposit. The trick is we're very up front with customers about those requirements. If they don't like it they can walk. But we're a good enough sign company that does good enough work that most customers agree to play ball.