From what I understand, paypal does protect the seller, they only need proof of postage...my argument, all along actually, has been you should need proof of delivery.

PayPal require proof of delivery in countries where the seller is legally responsible for items until delivered to the buyer, so I suspect that for as long as the laws are different in Oz, the requirement will be for proof of shipping only.

They (PP) used to be a bit more lenient in cases where proof of shipping could be established but the buyer had not received the parcel (a relatively rare occurrence pre-C&S), providing discretionary payments to the buyer without taking it from the seller. They changed this in January once C&S was firmly established (methinks because the probability where shipping could be established yet the buyer had not received their parcel increased somewhat).

The "what if..." scenario has always bothered me in this circumstance, particularly once it became evident that Australia Post were reluctant (read: primarily refusing) to provide compensation for lost parcels unless registered was used (funny how the postal service effectively claims "no responsibility for lost parcels unless registered is selected" 😐 << that face is for AP).

In circumstances like this, someone is going to be out of pocket. AP and PayPal don't want it to be them, legally it doesn't have to be the seller, so in a "by the book" transaction  it will be the buyer who wears the loss unless they're dealing with a seller who is prepared to wear it instead - that's one reason why the 'no responsibility' TOS, where stated, shouldn't be so easily dismissed by buyers.