There's a few things to keep in mind when bidding and buying on eBay.
First and foremost, the P&H quote is not about how much it costs the seller to post an item, it's to specify how much it will cost you to have the seller package and post it to you. Some sellers charge no more than exact costs for that service, other sellers add in a handling fee, which is acceptable (to a certain - debatable - degree).
There are policies concerning excessive postage charges, but it's unlikely $5.95, when $1.20 worth of stamps was used, will qualify as excessive under that policy after packaging / handling, plus any additional services if applicable (eg registered) has been taken into account.
P&H charges are not set by eBay - they are 100% in control of the seller. They can quote flat rate, which has a $7.20 cap on eBay in the DVD category (in other words, if they specify a flat rate Australia wide, they can not charge more than $7.20), or they can use calculated postage, which will calculate rates based on Australia Post's charges, plus any additional amount the seller specifies to cover packaging, handling & other costs - there is no cap on calculated postage totals. Some sellers need to charge in excess of the cap because they send DVDs as parcels rather than large letters (minimum cost of a parcel, before any packaging etc is added, is $6.95).
RRP has little to do with bidding, I suspect the seller was trying to make a point about the value of the purchase being = to the total price paid. (eg say they listed it as $1 + $7.20 P&H, at the end of the day you wouldn't be any better or worse off if they listed it at $8.20 free post - not everyone accepts that as a valid point, though).
