One thing to be aware of- if you open a dispute with Paypal, it can be very difficult to get a just outcome. I once had an issue with a similar thing with a Captain Power Power Base and I wound up blasting Paypal over the phone, where it came out that they'd stupidly believed it wasn't an ebay transaction, when the disput clearly says it is.

A couple of points- firstly, be prepared for frustration and for the possibility of needing to give paypal a verbal smack to the back of the head in terms of them recognising the bleeding obvious.

Secondly, what Paypal will demand from you is for a recognised dealer of what you're buying, or expert in that field, to verify the damage in writing as an "expert testimony". THe best advice I can give you there is to get hold of a toy dealer (and I think there mght even be one or two here on the boards) and get them to give you a hand.

I wish you all the best of luck with it.