No, you should never pay any AP up front, but whats done is done!
You can cancel anytime upto entering your PIN (not as you should leave it that late), which is signing the contract betwee you and Motability. By rights, the dealer has has no authority to withhold the £1000 deposit and would loose, if you took them to court, which is higly unlikelt to ever get to that stage however, thats not to say some dealers play awkward, but still end up giving the deposit back in the end.
Speak to the dealer and be upfront why your cancelling and ask how your deposit will be returned, if possible get it in writing. Should the salesman act dumb or act awkward requet to see the sales manager, who are more clued up.
See how that goes, along with advice from other comments and come back and let us know what stage you are at 🙂