Should a reference letter for a student always be positive?
The general answer is yes, a reference letter should always be positive. If one cannot write a positive letter for a student, one should decline to write a reference.
In this case, the student is having difficulty, perhaps even internal conflict, in choosing programs to which to apply. Captain Emacs has it right in the comments; that's not relevant to his ability to complete a Ph.D. program. If repeated requests to suggest programs are becoming tiring for you, say, "Repeated requests to suggest programs are becoming tiring for me. You are an adult. Find and select the program that you believe will suit you best. I've already suggested those I believe will best suit you."
While you are having that discussion, set a limit, perhaps three to five, on the number of recommendation letters you will write. Applications are usually kept to a reasonable number by the fact of application fees, but sometimes students get carried away anyway.
Your recommendation letter is supposed to be about how good you think he'd be at studying for a PhD, not how good you think he was(n't) at selecting a programme. Unless you think his uncertainty/awkwardness about where he wants to study will affect his actual study once he gets wherever he goes, it really isn't relevant to his letter of recommendation.
I appreciate that giving advice to this student about where to apply has become tedious but punishing them by writing a bad letter of recommendation isn't an appropriate way to deal with that. Rather, you should deal with it by better managing the amount of time you spend giving this advice, which may well boil down to saying that you've already made lots of suggestion and you don't have any more advice to give.
This answer is really more a comment, but way too long for one. I still think it speaks to the spirit of your question, which, through the lines and in several comments you later added, appears to also include: Should I write a letter if my colleagues don't agree that my student should pursue a Ph.D.? Should a letter only address academic merit? What is a reasonable limit to the number of letters I am expected to write, including those that end up not being used? Can I take back that I will write letters? Here are some thoughts about the above, and your question proper.
Other answers have addressed if a letter should be positive. I agree that, by and large, it should be. I know of a professor who, when he felt he couldn't write a good letter, wrote a few informal lines of what he felt he could write (which wasn't good), and showed them to the asking student. It's unconventional, but maybe one way of convincing a student to go elsewhere (this doesn't address your special responsibility as a Masters supervisor)
Your colleagues' opinion. Your two comments present the situation a bit differently - one saying that they seem to have given excuses (too busy and such), the other that they feel your student shouldn't do a Ph.D. (no reason shared here). A letter addresses almost exclusively if you feel someone is academically qualified to do a Ph.D., and to a lesser extent obviously also a student's personality as it influences likely success in their studies. For both, and as long as your colleagues don't share facts that could change your academically very positive opinion, what they say and do should not matter. It sounds as if this is one of your first times to write letters. One of the amazing side-effects of being an (assistant) professor is a large degree of independence, and I think you should cherish it. It's understandable that your colleagues' reaction makes you question your own judgement; but in that case I suggest being more upfront and inquisitive: ask them directly, off the record, "Are you really only too busy, or am I missing something? If you have reasons that escaped my attention, I would value your feedback." And when you have all the facts, make your own decision
Should a letter address only address academic merit? Are non-academic factors legitimate reasons for a student to consider? Relevant non-academic reasons can certainly influence your decision to write a letter (e.g., lack of maturity or persistence, poor team-worker); and if you write a letter, you are free to allude to them (which I would tell the student though). However, in this case, allow me to say that as a mentor, you should have ensured that what happened, wouldn't have happened. When you discuss letters in the future, bring up what else matters to the student - before writing any letters. I find it quite understandable that a student prefers not to study in country X, or, in a short program of only 3 years, to be on a fellowship as opposed to having to also teach. If you disagree, present your reasons in this initial discussion, and see if you can convince the student; and if you can't, such universities should not be in the application pool. When I applied, one of my letter-writers tried hard to convince me to remove Princeton from my pool (he had taught there, and found the location dreadful), while making other universities in far-off places (Twin Cities, say) palatable underlining he loved the people there (among others). He failed in the first, and succeeded in the second; so both ended up in my pool. Don't take this (too) personal: it's your student's life
Number of letters. As others have said, on the order of 10 seems certainly normal. I had 15-ish, 20 years back, as I lacked a sense of the strength of my background, and we discussed this too - I was told it was excessive, but people still helped me at this large number when I asked them to please agree. So discuss a number of letters you are willing to write in advance as well. This number will vary (how busy are you? How strongly do you believe in the candidate?), but don't later adjust it down except for very good reasons. Withdrawing an application at a good school is unfortunate and disappointing, but see (3), and it happened for a reason at least some understand. Don't take it personal; just deduct one from the agreed-upon number
Can you take back writing letters? Only for better reasons than i see here, if I understood what happened correctly. Factual information by your colleagues (which shouldn't usually include performance in their classes, but, say, aspects of the student's personality that didn't manifest with you) could lead to legitimate reasons to renege, but they should be very convincing
These were just some thoughts, which I hope weren't too off-base, and I also hope you maybe find of some use.