I think you are being very silly blaming all the damage on Australia Post they are not going to pay up on a bent knob or a drawer that has opened while in transit.

These are packaging issues both by you and the buyer.

Forget about Australia Post.

You have received the item and there was no loss or damage by AP, the problems can only be about the glass lid missing and did you get back the set you sent. As for the buyer not sending it back registered it doesn't matter now, you got the item and it was not damaged by AP. Leave that issue out of your contact with Paypal, only concentrate on those issues that need to dealt with and can be dealt with.

Notify Paypal immediately that you have not received back the item as listed and sent by you, then explain why it isn't the item you sent to the buyer.

Contact FSO or whoever you contacted about the money being put on hold.

Contact the buyer through ebay messages only and ask for a stat dec witnessed by a JP that they did not keep the glass lid as you will need this for a police report about the missing lid.  Keep this email short and to the point and also very polite. you only need to ask for the stat dec and nothing else.

This is a huge mess and as you were involved in creating this mess no one can promise any of this will work out for you but give it a go.