Cheap enough that you can live without getting the refund, I'd say no, repeat my paypal address "in case that's what's going wrong", and report the whole thing to ebay - by writing them a letter, if it's easier than getting through their robotic system (do tell them in the letter that that's why you're writing instead though). Sounds as though the whole operation might be a scam aimed at getting bank details (ie maybe the item never existed), so I'd be concerned.
Don't give them your bank details. I've always spoken to someone helpful on the phone when I've called Ebay I think you request a call back and they call you straight away and they can sort things out that way by looking at the messages etc. Otherwise you can open a dispute through eBay you can also open one through paypal- you will get a refund as they generally favour the buyer. I wouldn't enter into correspondence with the seller as they're insulting you and refusing to use PayPal.
You don't need to call ebay, just open a not received case.
My guess is the buyer has a negative PayPal balance, so they won't be able to refund you unless they top it back up UNLESS eBay force a refund which is what they will do if you open a case, so do it now.
If it helps I haven't been able to use any of my cards through PayPal today on mine nor my husbands accounts, however it seems an easy scam (if indeed it is one)... sell cheap item, don't send, offer refund via bank details. It's like buying your bank details off you. I used to work in banking and the levels people go to for scams never surprises me.
What could someone actually do with just someone's bank details, though? Surely, in order to steal money from an online account, they would also need a password or membership number and a security code? I'm not saying the OP is in the least bit wrong to be concerned, or that the OP should give the details; I'm just wondering if it's really dangerous and if so, why.
But you're covered under the direct debit guarantee, and would get the money back the same day. And you'd have to be a really thick scammer to do that as it would immediately trace back to you. There's really no risk handing over bank details, they're on cheques that you can give to people!
Perhaps they'll go on to then ask for more info. Yes, bank details are secure to an extent, but money could be laundered through an account also. You just have to be careful who you pass info to online. As ex bank staff I wouldn't do it. Also the seller isn't protected for the refund as it's outside of eBay so the general consensus on both sides is keep everything within eBay.