A very old discussion, 10 years ago! Like this question so much that I'd like to give my 2 cents.
My take is to go with your instinct. You are right on, if after all the effort you try to paint a realistic picture for the seller in the listing presentation, still not listening, then the seller doesn't want to sell regardless what he/she said. That's disingenuous. Yes, it's not worth the effort and you won't be able to help eventually, because it's almost impossible to get a buyer to pay for an overpriced property, the chance is slim. We are not talking about a little overpriced, I believe we are talking about WAY overpriced. It's like gambling, and the odds are not on seller's side. How many gambler wins overall, right? Do we want to be a part of it when we can find something more productive to work at?
Good point to have it in writing to get price reduced, set expectation in writing. However, I doubt that he may agree if he's 'hard-headed', you may not get his listing at all. He may just move on to another realtor who may agree to gamble with him, at the realtor's expenses. The bright side is, at least, you know from the the get-go, and you choose not to play his game.
Be honest, if it's yours, it will come back to you; call a spade a spade. There's no way, if he/she is 'hard-headed', from my experience, to 'persuade' him/her. Motivated sellers don't argue with agents given the right data/facts, it's an argument you may never win.
Sellers with this mindset don't need realtors, they can sell it on their own and eventually sell for less. FSBO sells 10% less than properties listed with realtors, in average, and this national data is trending up as we speak. Guess what, some sellers don't realize the value to have a good realtor on their side, and some may even think they know better, no, they don't, but in denial. Hey, if that makes them happy to not realize it, so be it. It's some sellers' choice, no offense. We as realtors have mission to go out to help those who sincerely would like to work with us and make sales happen.
Patti, you've given all you can, kudos to you trying to help him! We've all been there or run into one occasionally, we learn and we move on for good.
My short answer is to 'try' our best to present the market price, be prepared to walk away if we can't agreed on a realistic strategy, may as well put a clause to get reimbursement on marketing expenses spent. A motivated seller would agree to sign, if not, he/she knows it's not going to sell, why bother to get that listing that will expire?