No, PP will not pursue their loss from the seller for receiving the item back. After all, the seller may not be able to re-sell the item (no longer new is one of a million possible reasons).

If PP had refunded the buyer, PP will say in their decision that it had ruled in the buyer's favour but under seller protection it has released the fund it locked. If it says that PP has ruled in the seller's favour, then it means the buyer is out of money and item. But personally, I wouldn't be crying a river for this buyer. This buyer certainly owes the seller an explanation for the troubles.