I purchased a set of DVD's on EBay, and the set I received was
counterfeit.  EBay wants me to return them to get my money back.  Is
it okay for me to return counterfeit DVD's to the sender?  They are
illegal (under both U.S. and Canadian law; I'm in the U.S. and they
were sent from Canada) and I am concerned that it may be illegal
for me to mail them, especially to someone who is likely to resell them.

Well of course, you need to determine what exactly it is you want to
accomplish. One buyer (you) returning the DVDs to the seller won't
really do anything to curb the traffic. What will make a difference is
if a large number of people either return their bootleg copies or
don't purchase them to begin with. If what you want is mainly to put a
stop to the traffic, then perhaps you ought to consult an agency of
the Canadian government for their advice. If you tip them off to the
bootleggers, then they can put their police to work on it.