Is this hub beyond repair? I recently took my bike in for a service and they told me that the hub and bearings had worn out and they needed to be replaced. I took the wheel off and rotated the bolt thing going through the center and there was a bit of a grinding feel. I took it apart and cleaned it up and it didn't look so bad



Its a bit hard to focus on such a small item but it seems to have an ok mirror shine and I only found a few minor scratches on some of the balls



If I apply new grease to this and put it back together should I expect it to work fine or is it actually in need of replacement?
https://www.parktool.com/blog/repair-help/hub-overhaul-and-adjustment might be worth a read. 

The cones do not look too bad.  Hard to see from the photo what the hub is like - are the hub cups pitted? This is what will require replacement. If the cups are not replaceable, the free-hub body might be. However, it boils down to cost and parts availability. Chances are a new wheel will be cheaper than replacing the hub if the hub cannot be rebuilt.

If the cups are not too bad, I would go with new bearings and cones as these are cheap.  

From the shops point of view, if they try to service the hub and it fails after a short time, they are on the hook and their reputation is toast. As big chunk of the cost of servicing is labor so it's more cost effective to replace rather than repair. If you are prepared to do it yourself it costs a small amount of money to gets a bit more life from the hub, making a service worth while.