Recently, I just went through this WHOLE THING with eBay & PayPal and can describe the process. I'll try to explain this briefly...
I do not carry a PayPal balance, and have been using my account since the x.com days, so I've seen a few scams.
I sold a TV speaker on eBay advertised as NEW. The buyer made a claim saying it was missing a part. I fought the dispute and won. Buyer then files a dispute with PayPal by issuing a charge back. Note: the person is the problem, not PayPal. Now in my case buyer paid with a credit card, so it may be different if the buyer used a bank account or PayPal balance. Now PayPal immediately withdrew the transaction amount (by law as OP stated) + a pesky $100 charge back fee, which I fought and got waived. The buyer does not have to return the item. The buyer does not have to prove anything. The seller can only give their side of the case to PayPal. PayPal will fight vigilantly on your behalf. However, there is a mandatory 75 day waiting period. Since I do not typically carry a PayPal balance, after 21 days I still had a negative balance and started getting nasty emails. After another week or so, I could no longer call PayPal to discuss and would be immediately be transferred to collections. After 37 days, I think it would appear on my credit report so I paid the negative balance. At this point, all you can do is wait. 9 out of 10 cases are won by the buyer, mainly because the seller wasn't prepared to fight with proper documentation. If you lose, your best recourse is small claims court. In my case, I was fortunate and won and winning the eBay dispute certainly helped. It's a risk to sell in the sense that credit card companies view you as a store that should always accept returns for whatever reason, but that is not true as most people do not operate as such. Understand that PayPal is not a bank, they are merely a payment processor, so if you sell a lot, get seller protection from them.