sheishollywood i'm so sorry that you're going through all of this. i hope it is settled sooner than later.
i work for visa collections and we deal with much larger debts than $3000- up to 50k and more, and the people who possess these debts don't hear from collection agencies such as NCO for up to 8 months of non-payments. paypal seems to be jumping the gun to keep one client satisfied but as your lawyer/friend pointed out, VISA/MASTERCARD MUST prove that the merchandise was returned back to the seller under the terms and conditions setforth on the sale. this buyer absolutely has to return the item with proof for the chargeback to be legal!
my advice to you is to keep in touch with your lawyer friend and do not become intimidated by NCO. a couple of my colleagues worked for NCO last year and the stories they tell me... let me just say that their collection tactics are unbelievable. don't buy their threats.
as for your credit, this is a shame. hopefully it will all work out in your favor. keeps tabs with your credit card company to let them know what is going on, if necessary. if there is any harm done to your credit VISA/MASTERCARD can perhaps have your account reinstated once there is sufficient evidence that you have been dealing with fraud.
what a mess. keep us updated. this is so awful!