This is a 'feature' of the credit card system, it has nothing to do with PayPal.
If you buy something with a credit card, you can chargeback by claiming a defective product and get your money back from the card companies. Then the card companies go to the seller to get their money back. In this case, the credit card companies only have a relationship with PayPal, not you, so they come to PayPal to get their money back. PayPal fights them but if they lose then they pay up, then they come to you to get the money back from you, and you obviously refused to pay. You can imagine what this kind of thing does to PayPal's business.
Paypal were the ones that ended up getting screwed in that transaction. Just be glad it wasn't you.
I understand chargebacks. This wasn't a chargeback, it was a straight up Paypal reversal. And if you count not being able to use Paypal for anything as a penalty, then I got screwed too.
Sometimes when all of the businesses (PayPal, Visa, MasterCard, AMEX, Amazon, etc.) in a particular industry behave the same way, it is for good reasons.
What's the alternative? For them to err in favour of the merchant, occasionally screwing consumers? When bad stuff happens in transactions (online or offline) merchants should be prepared to sometimes take the hit. It's so much better than loss of consumer confidence.
Look at the general willingness of large retailers to accept returns. They do it because they want consumers to buy without second thoughts.
If you buy something with a credit card, you can chargeback by claiming a defective product and get your money back from the card companies. Then the card companies go to the seller to get their money back. In this case, the credit card companies only have a relationship with PayPal, not you, so they come to PayPal to get their money back. PayPal fights them but if they lose then they pay up, then they come to you to get the money back from you, and you obviously refused to pay. You can imagine what this kind of thing does to PayPal's business.
Paypal were the ones that ended up getting screwed in that transaction. Just be glad it wasn't you.