I recieved a full refund from the lady i'd mentioned about in your other topic, regarding a phone i bought that i never recieved, by recorded delivery, and truth is, she didnt have to refund and probably wouldnt have if i'd been "iffy" with her
if a lost recorded package eventually turns up within royal mail, it'll be returned to the sender
if i were you, i'd be tempted to keep the paypal cash and claim through royal mail and maybe send the buyer the £34, since they were more than prepared to open a paypal dispute in the first place without trying to contact you first to enquire!
I almost fell victim of a scammer through paypal and ended up even better off than I started, after buying a phone for £125 and paying by paypal, the seller e-mailed to say my money had gone to the paypal account of a hacker, not his, so i complained to paypal and they froze the transaction and contacted the "hacker" who subsequently never replied, and because they never replied, paypal reversed the payment back to me, but ebay also paid out £105 to me for the transaction even though i hadn't claimed through Ebay itself!