We were ripped off for £300 on ebay. Paypal only refunded us £100. Their promice to refund "UP TO £500" is just that. "UP TO". Add a credit card and should you have a problem then your credit card company will get you back 100% of the loss. Sadly I learned this the hard way. I thought I was covered via paypal when I paid for £200 worth of gift vouchers. When they did not show paypal refunded me 0 as I had already claimed the max 2 times already that year. Sadly these were items to the value of £2.50 and £3 ish.
ALWAYS PAY WITH YOUR CREDIT CARD THROUGH PAYPAL.