Unfortunately, it is your word against his... and PayPal almost always sides with the seller. I have been selling stuff for 5 years on ebay, and this has only happened to me 3 times. Each time I didn't even have a choice in the matter. PayPal refunded the money each time without my authorization. It's getting to the point where I really despise using it, but the alternative of waiting for money orders is always a mess, to say nothing of all the international orders I would loose. It really doesn't matter what kind of return policy you state, PayPal's going to do what they see fit.
I would seriously try talking to the guy again. Try even calling him. His phone number should be on the PayPal receipt. If you try to talk it out, and stress that you really know the merchandise and stress how you always triple check your orders, he may back down. And who knows, he may have made a mistake. Above all KEEP YOUR CALM. If you get into it with this guy, it will only look bad on you. Again, experience on this one.
If that doesn't work out, be prepared to lose on this one. It sucks and I really feel for you; I've been their myself.