Getting the wrong item is frustrating - I feel for you.

Mind if I ask whether you emailed the seller to give them the opportunity to fix the problem before opening a Paypal dispute?

I only ask because it is Paypal who will request that you pay the postage to return the item to the seller as part of the dispute process (should Paypal decide this) -- the returns policy option doesn't really matter at this point anymore.

If you haven't emailed the seller before opening the dispute then the seller is less likely to do more than they absolutely have to (as part of the dispute process) to help.  

Ensure you keep all the original packaging the item arrived in and take clear photographs showing the product and packaging (weight, size of packaging, cost of postage etc) as the seller's latest request sounds a though they might dispute that they sent the wrong item.

At this point if you haven't already opened direct eBay message communication with the seller (and have only used the Paypal dispute as contact) I think you need to try to message the seller to get some kind of clear dialogue going.  It won't hurt and is in your best interests considering you have $300 at stake.