I've just read the guide "PayPal Buyer Protection Fraud" and found it quite enlightening, particularly as I myself have recently been the victim not only of a fradulent seller (who in this case sent me a cheap fake item) but also of PayPal who quite obviously had absolutely no intention of honouring their 'buyet protection guarantee'...
I complied with ALL of their instructions, TO THE LETTER. I sent the fake item back to the seller and provided the seller and PayPal with a Royal Mail tracking number. PayPal then delayed resolving the case for over a month for no reason whatsoever and then sent me a single email stating then the tracking number I'd provided was invalid, (it was not, indeed, entering the number on Royal Mail Track and Trace still shows that the parcel was delivered in Hong Kong), and demanded that I get paper evidence of posting to them within THREE DAYS, otherwise the case would be closed.
Of course, (and just as they had intended), by the time I read the email there was no way I could get the reciept to them in time, even though I had kept it. They promptly closed the claim and refused to consider the matter again after I sent an appeal.
Let me make it clear, this is not just a matter of PayPal putting in place 'difficult' procedures, this is blatant and deliberate dishonest illegal behaviour by PayPal, as I said the Royal Mail tracking number was and still is valid, PayPal are nothing but lying, cheating, contract breakers.
My advice to you if you find yourself in a similar position, don't let them get away with it! Always make sure you keep aALL paperwork, reciepts and emails and when they refuse to pay up, file a claim via small claims online at moneyclaim.gov.uk The process takes about 10 minutes and only costs £25 (Which the defendant has to pay if you court finds in your favour) and can be used for claims of up to £5000.
I can GUARANTEE that PayPal won't attempt to defend the case as the blatantly dishonest and illegal nature of their actions would quickly come to light in a court case and legal rulings against them would seriously weaken their position in similar cases and claims.
The court will serve them with your claim and if they do not respond within 14 days then you can ask the court (online) to enter 'judgment by default', and unless they respond before the court recieves your request for this then the court will find in your favour and serve a warrant to it's balifs to recover the amount of your claim plus the fees you have paid.
To be honest, I'd much rather PayPal disputed a claim so that their dishonest practices could be aired in the court but they are undoubtedly to spineless for that!