UPDATE: 5-12-08
I finally got an answer from Paypal about my situation.
I called them yet again, and THIS time...I got to a supervisor!
Long story short...I did everything right, and they are going to "split the difference" with me (a 50/50 deal).
The reason is still a little foggy, but basically it's this: A seller needs to go online after getting a "You have been paid" E-mail from Paypal, and check the transaction details, to see if the buyer is ELIGIBLE for seller protection. If not, the seller should refund the payment, and contact the buyer to make other arrangements. The "eligibility" is on a case by case basis "risk factor" determined by Paypal's computer system. (It's WAY easier to be protected as a buyer).
I will now be even MORE careful now that I have a better idea, as to how the game is played. I hope this helps everyone here from learning the hard way, like I just did.
Case closed
