Paypal are probably doing this to teach people not to take unnecessary risks on ebay. It would obviously be a headache for them too. Ebay (and no doubt paypal) already know about this dodgy seller and there must be other victims.
I'd say the dodgy seller is probably using fraudulent paypal details then grabbing the cash and running before the buyer knows the trick. Paypal arent going to wear a loss that easily. Good luck with it