I recently had to claim. You just have to provide proof of postage and some eBay stuff along with Paypal transaction details. Explains it all on the form. They don't want to know what you originally paid for it, just what it sold for.
TragicallyHip - go on to the Royal Mail website, you can download the necessary form. I did this recently when a cheque I sent as eBay payment was delayed by a week, lost in the post - and the seller would have preferred Paypal which I don't have, which made it worse as they had to wait. I didn't have a proof of postage as thought sending invoice and cheque first class would have been fine but the delay made me very cross so I complained anyway. Got letter of apology and book of 6 first class stamps as goodwill gesture.
if paypal force the refund then you will get a black mark against you and they refund the buyer from your money in your paypal. If your paypal has no credit it will go into a negative balance and you will have to repay it.
if you refund yourself before a case you won't get a strike.