Just received an email from PayPal stating the buyer is escalating the dispute to a claim for PayPal to investigate. Fantastic... I've offered a number of compromises, communicated as best as I could, members like Ant, Foot and Dave have tried to help and not been acknowledged by the buyer, but by the looks of things I'm going to have to give a full refund and receive a broken gun in the post in a few days...
EDIT: Another email stated that PayPal only dispute delivery, not state of goods and thus will not investigate at this time, but retain the right to within 180 days.