The transactions are simply cancelled, paypal doesn't protect transactions involving virtual or non tangible goods and past evidence shows they do absolutely nothing if bitcoin purchases are canceled. That's only the tip of the iceberg, a financial crimes report from last year claims 20% of international transactions with paypal get canceled.

Ofc bitcoin transactions are final so the sender loses if they get screwed over with paypal. Fwiw a lot of folks trade bitcoin with linden dollars (second life money), it works out expensive but its a safe and convenient option.