If my guest takes the 4+4 SDF incentive (or any other incentive) and then spends a night in the border town, can they only pay for three nights SDF and still get four nights free?

No. This incentive is not combinable with the SDF waiver for border towns.  So, if guests wish to visit the border towns before or after receiving the SDF incentive, the guests will need to apply for another visa to do so.