Is it permissible to dispose of money that has been returned to me by a seller of haram (unlawful things), knowing that the seller returned it to me from ill-gotten gains?

You are permitted to benefit from the money you recovered, as the seller returned your own money to you, and the prohibition is not related to the physical currency itself. You have done well by quitting smoking, as it is forbidden due to its harm and impurity, based on the Almighty’s saying: "and makes lawful for them the good things and prohibits for them the impure things," and based on the Prophet’s (peace be upon him) saying: "There shall be no harm or reciprocating harm."