Let him know that he has advised that he will be picking it up and that he stated that he will be paying cash.  Explian to him that you have reversed the paypal payment.

He may not realise that a pickup item isnt covered by paypal buyers protection.

On the negative side the buyer may print of the paypal reciept and claim that he has already paid.

That info is just for yours and the buyer's benefit, it has nothing to do with anything.  If it worries him that it shows as unpaid, he can just archive the item so it is out of sight.

Tell the buyer to mark as paid or you just mark as paid.

No biggy as it means nothing when you both know it has baan paid for..

Tell him to delete from  his won list and it will be gone and no need to look at.

I recall vaguely that sometimes ago I was in similar situation and could not mark it as paid; if he is worried tell him to come here   Some people think that unless it is marked as paid eBay will give him strike .