The royal landowner's proposals, for a new apartment building by local architect Lionel Gregory, have been fought tooth and nail by residents of the existing pastiche village, masterplanned by Leon Krier.
The inspector agreed in large part with their criticism, which argued that the scheme ( pictured) was too large, too dense, too over-bearing and would bring too much traffic to the area.
The report, published yesterday, will come as a significant blow to the Duchy, which argued that the scheme would produce an examplar of high-density rural living in the Prince's Traditionalist style.
The inspector's report said that the scheme would give nearby residents `a sense of being overlooked, which would diminish the quality of their living environment'.
It also added that there would be `noise and disturbance' from people using the car park at the block, which would cause problems for locals.
Local resident David Dawkins said yesterday that the proposed block was around 130 dwellings per hectare compared with Government recommendations of around 40 dwellings per hectare.
He said:`We are absolutely overjoyed. It's fabulous news. We didn't think this was going to happen because of who we were dealing with.'
He added: `It has been a David and Goliath scenario. We have been ignored from day one. Every discussion we have had with the Duchy has been initiated by the residents. They have ignored us, they have told us flatly they were not going to discuss it with us.'
But a Duchy spokesman vowed that plans to build something on the site would not be surrendered. 'It is significant that the inspector endorsed the vast majority of the scheme: the proposed density of housing, the height of the main building and the quality of its design.
`However, the Duchy of Cornwall acknowledges the Inspector's report and notes that his decision is final.
`We believe that the report's concerns can be resolved in the design and we will now discuss with the planning authority, residents and the developer amendments to the scheme with a view to submitting a new application in the near future.'