Thank you all very much. I just refunded the full amount and told her if she still want to purchase, she would need to have enough fund in her own paypal account, then she can purchase again and the transaction would be marked 'eleigible' for seller protection, as mentioned by northerndancer.
Also, I called paypal to inquire about this transaction, they were able to tell me that the billing address is kind of fishy, it has two countries, singapore and australia. The rep kind of hinted not to go ahead with this transaction.
I feel so relieved now, knowing that I am not at risk if anything happens. Nowadays...you just never know!
Thank you all!