Your first step should be to explain everything to PayPal in a nice lengthy email with a bunch of screenshots.
If that doesn't work, odds are you're going to lose.
Now, the only thing left for you to do is threaten the buyer. Get his IP and threaten to call the police, make an ISP report fraud/abuse, etc. He should get scared and close the dispute and then you should be good.
Those are pretty much the only two things you can do.
Does crying in the shower help? That's what I have been doing so far.