> what will happen if orbit refuelling goes wrong? Won't it destroy everything in orbit?

No. What is the mechanism through which you suspected this could happen?

All Starship test launches are suborbital so if anything goes wrong, the ship and debris fall back to Earth.

Even if it was put in orbit, debris are not an issue because orbital decay at Low Earth Orbit (LEO) is significant. A satellite orbiting below 250km will fall back to earth within a few hours, and at 400km within a year. LEO below 500-600km has enough atmospheric drag to be self-cleaning.

Orbital debris are more significant issue at higher orbits 800km and above.

Presumably the effect of any explosion would decrease proportional to the volume as it expands. Is there much volume in space?

Liquid handling in microgravity has always been weird. Big gas bubbles in the fluid, surface tension effects causing liquid to float in balls in the ullage, stuff like that. Turbopumps break if they ingest a larger bubble.

There could be some odd failure modes I would think. Failure to pump the liquid, broken pumps, who really knows? My guess would be that a failure mode would be a big spill, a failure to pump, only partially refilling, or broken turbopumps before an explosion.