Yea, F that. If he was a guest user I would simply cancel the sale and re-list. Bunch of BS that Ebay lets you get scammed...plus they charge you the fees for being scammed as well.
I would think eBay will credit back the fees if he gives them a call to explain the situation. He should not be charged back $1,600 from PayPal because they were the one's who basically says the buyer is okay.
Bottom line: Don't sell to anyone with less than 10 positive feedbacks as a buyer for a large amount of money. They should have an approved PayPal account with confirmed address by that time.
EDIT:
They wanted him to file a police report... Well, with which precinct? The one where the person who scammed him lives [Remind you he doesn't have that information]? With precinct in same city as PayPal headquarters? With his own precinct? The whole thing is just bull shiznit! I believe PayPal should be sued. However, they probably covered their ass in the user agreement.