Well, I just got off the phone with the Paypal dispute department. They said that the seller tried to do a refund from their bank account but had insufficient funds. He told me that sellers will do that to buy them some time and close the claim. He said once a refund is a attempted then he claim is closed. If no funds were refunds Paypal does a "Best Effort" recovery to get the funds back. In not so many words he said I'm screwed unless Visa can do something for me. I asked that the claim be escalated to the fraud department and he said they had already had a complaint going for him in the fraud department.
Just so everyone knows, Paypal does not guarantee or protect transactions outside eBay. They will only try to get your money back.
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