Forgot to add, that I think potential buyers will be far less put-off if you have a neg. (or a withdrawn negative) from a seller, than they would if you had a neg. from another buyer.
Miss Sooky, because your transaction is over $250USD the seller must have signature confirmation of receipt to avoid a chargeback. The paypal policy for sellers is concisely laid out here: Help Center - PayPal
The fact that the seller posted 'it was sent, courier post' means nothing--that's just a statement but not proof of delivery. The important thing to pay attention to in the paypal dispute console is to escalate the claim to paypal before the time window for that option closes. Paypal changed their dispute process in 2006 (I believe) to create this communication console (their word, not mine) where at first you and the seller are posting back and forth about what happened. The aim is to get you and the seller to agree (doesn't sound likely in this case) to a resolution, all the while what you are saying is recorded. If you can't come to an agreement, you have to click on a link somewhere that says escalate to paypal. Then they formally take over. Without a delivery signature confirmation from you, paypal should refund the money to you from the seller's account. I know that paypal requires that you begin the initial dispute process (which you've done) within 45 days of making the payment but I don't know within how many days you have to escalate the claim. If you don't take the step to escalate, it gets automatically closed and you can't refile.
Let us know how it goes!