One neg is no big deal.

Says the person with 13,000+  fb

Keep in mind, the OP only has 270+  fb

I think you are doing the right thing in agreeing to refund on return, at least they opened a Paypal dispute and not one through ebay or you may have ended up having to pay for the return postage as well.  I would not have left a follow up without calling ebay first and asking for the neg to be removed because of the extortion, you should still do so and if the first person doesn't agree to the removal try again later as some are more willing to help than others, if you still don't get anywhere ask to speak to a supervisor.

Was busy at work today, don't have the time to call eBay, but filed a "feedback abuse" report via ebay's website. Successful got the "feedback comment" removed.  Later I understood this was only the 'comment', so the "negative feedback rating" is still there, along with my follow up.

I got off work, first thing is to call eBay, took them 3 min to go through all the email threats from this buyer. And they removed this negative rating for me.  😄 

so happy and relieved.