I had a simular but different story to that. Long story short, USPS can and does track packages with insurance or at least those that are signed for. I would go down to your local PO and see if they can track the numbers. They shouldn't hand you a tracking list, but might confrim that it has been shipped. You might file a claim with them. Also, state mail fraud. Since you put insurance on it, and the receiver says they didn't recieve the package, then you should file a claim with the Post Office. I would note this with E-Bay and PayPal. I'd probably be very clear with E-Bay, PayPal and the Purchaser about this. Also, maybe note any actions against you, will be handle legally.
Now my story, and I have a few E-Bay ones. Some my fault. I was helping sell some stuff to a friend/coworker. There were some lathe parts and Dodge/Cummins injectors. The lathe parts sold for more than he thought and was happy. No problems there. The Injectors sold a bit cheap. I usally offer insurance. The buyer didn't request insurance or a tracking number. My take, but not probably E-Bays or PayPals, is its the buyer's choice and loss if package doesn't arrive. Anyways, about a moth latter, someone sends me an e-mail saying the injectors haven't arrived. He does hint that he is probably out of luck and I scammed him. I will note that the persons name is different than the E-Bay Buyers. I did send an E-mail back saying I would do what I could from my end. I was going on vacation so I let the person who sent the parts handle it. Not much went on with that. I did send the tracking numbers for the insured mail, but that is no good for us, only Post Office use. I did call the guy. The receptionist only spoke spanish. I finally got her to transfer the call. The guy's phone mail was full. I called back, and requested an english speaking person. They didn't know who I was talking about. I did know at that point,that the package was in that city. Delivery was atempted once. Since the person who it was sent to was on the road, the other person really couldn't pick it up at the PO. I finally had the seller place a claim. Then the PO found the package and delivered it. Part of the problem was that the package was insured for over $200. So a signiture was required. The Mailman tried to deliver it, but when asked for such-n-such person, probably got an answer of, 'No person here'. Translation, we never heard of him.
So I would go down to the Local PO, or fill out a claim on line. That should get some wheels turning and such. Make a copy of the e-mail sent by the buyer, PayPal and E-Bay.
One time a package I sent didn't get delivered the first time. It was a flyreel spool, and going to Alaska. I did go down to FedEx and I remember like $16 or such to ship. That would gobble up my profits. They recomended USPS. It doesn't cost anymore to ship to HI or Alaska than other states by Priority mail. Anyways, I wrote the wrong address. It was something like Mountainview rd and I wrote Mountaintop ln or something like that. The package was sent back. I did e-mail the buyer and resent it. So every one was happy. I was out $5 or though.
ANother time, I had a Mercedes part being send to me. I didn't request tracking or insurance. It was an overflow coolant resivour for a W123, used with hardware. There was a substitute driver that day. They delivered the mail to the foreclosed house next door. I found my other mail, in that mailbox. The PO did post notices on the windows of that house. I did search for the package, but didn't find it. Had to explain to the PO several times, that I did look. Not a huge loss, and they could have swiped some aluminum Jeep wheels, if they really needed some money.
Tom