I understand why you are so angry but do try to take the emotion out of it. I would suggest just giving a full refund. That way all you are out of pocket for is whatever the item sold for in the first place plus original postage. You can certainly offer a partial refund and see if it will be accepted. Paying for return postage is fraught with issues IMO; you can have no idea what the buyer will return, nor how they may pad the postage cost.

Whatever you decide, do respond to the case in a timely fashion; if you ignore it, and eBay closes in their favour (as they certainly will), you will get a defect from eBay against your account. The only way I could see to appeal to eBay is if their Feedback Left indicated that this was a common (and therefore suspicious) theme with their purchases.

As others have said, don’t leave them Negative Positive Feedback; it is an offence, they could get eBay to remove it, and again you could get a defect from eBay. If they leave you Negative Feedback, I would just ignore it – you sell plenty of items, and it will soon get lost amid your (very) Positive Feedback. You are a very experienced eBay seller; if this is the first time this sort of thing has happened to you, you have been very fortunate. Respond to the case, block them and move on. Good luck.