I don't often have "confirmation" that a gift was returned/exchanged, so I guess for the most part I don't know that it is happening. But I would much rather the person exchange for something they want or will use. DH's little sisters are 19, and I have such a hard time shopping for them (they dress so much trendier than I ever did!), but I hate to buy gift cards every single time. I usually will buy something from a store I know they like and include the receipt so they can always exchange it for something else if they want.
My Favorite Books

Books read in 2012: 58!
Re: S/O Poll: Do you get offended if someone returns/exchanges your gift?
Hell no!
I'm a practical gal.
Get what you want and be happy.
That's my goal in gift giving after all, isn't it? Something nice for the recipient, not something nice for my ego.
Total score: 6 pregnancies, 5 losses, 2 amazing blessings that I'm thankful for every single day.
In most cases, I would not be offended. If it were something I had spent a lot of time picking out or that was really personal, then I might feel a little bad but I'd get over it.
However, I get gifts from my stepmom a lot that she says she has no problem with me returning. Like you, she says she'd rather give a gift than a gift card. However, I feel guilty returning stuff so I almost always keep what she gives me, even if it's not my style.
I sort of have a lot of anxiety associated with gifts. My real mom is *very* concerned with always showing a massive amount of gratitude for any gift (and by that I mean you have to go on and on and on and that she will start to cry if your enthusiasm is not enthusiastic enough), and this rubbed off on my when I was growing up, so I very rarely exchange or return anything.
Clomid M/C 8 weeks 2/08 *IVF #1-DD born 3/09
*Surprise BFP-T18 baby lost at 13w 1/10 *FET #1-DS born 2/11
Our Thanksgiving Day baby 11/22/07
Pregnant with #2 with LPD, uterine polyp/hysteroscopy, DOR (AMH = 0.17), 2 c/ps
Our early Christmas present 12/9/10