I have posted on this before and as usual some of the regulars here will argue just for the sake of it as they did last time.... Thats what they do on these forums im afraid.  But I have a negative feedback for just this situation. I refunded a paypal payment on an item which was to be collected. This was because in the past I have had an item collected and then chargedback by a dishonest buyer.  It is against the law for a business to accept payment by Credit Card in advance on an item to be collected at a later date. The same precedent should apply to paypal. However neither Ebay or Paypal are answerable to Australian law. ( I knoew this as a fact because I used to have merchant facilities in my Sydney store and i spent 7 years as a practicing Solicitor for.)  They will make you accept paypal on an item to be collected and you will not be protected if the buyer is dishonest. They can even claim you offered free post verbally and so you will need to prove postage. Your options are as you have found to have your listing cancelled or to risk negative feedback by spiteful buyers if you refund their Paypal payment..

I don't know why anyone would argue with you over that, seems perfectly sensible to me.

My only thoughts are that a buyer can use a credit card to pay for a pick up purchase if they use Paypal if they don't have the money to pay cash. But that is their problem not the sellers and maybe they should get a cash advance if they want the item.