still in dispute with paypal over a near identical situation.
like you I offered insurance but was told ‘non’, had proof of postage etc. Had a claim via paypal, they found in favour of the buyer (their policy) and drew down on my account putting me negative.
If I were you I would do the following:
1. empty your paypal account
2. remove the card details you have on line with them
3. be prepared to dig your heals in.
Have had loads of ‘we are trying to scare you’ mail but I have told them that if they want to discuss it I would be happy to in court with a judge and not a mindless paypal ‘computer says no’ clerk.
Problem is though is that your ebay account will be blocked. When mine was I started a new one but now the rules state that if you want an ebay account you MUST have a paypal account. So far I have had to ‘move’ ebay accounts a number of times but they always end up tracking you down!
As the £ falls to the Euro there will be a lot more Europeans wanting to buy goods from the UK and therefore will probably be a lot more unscurpulous (sp) people pulling fast ones.
The moral is to always insist on recorded parcels. If they arent happy with that then consider that a telling sign!
Good luck. There is a anti-paypal website somewhere where you can get details on how to take them on btw.