It works, but not because PayPal works. You are doing something that doesn't even have to involve PayPal.

You're buying a gift. Then selling the gift card. As long as neither paypal, nor ebay can cancel or withdraw funds from the account that the ebay giftcard goes to, this would be a viable transaction.

I don't think they would revoke the funds on the giftcard or account, but they would certainly go after the original buyer of the giftcard for bouncing a ~125 purchase.

If I were you, I wouldn't mention how you bought the giftcard.