Sounds like the post office screwed up and the only way to force them to do anything is through the seller, so the course of action is pretty clear - you open a paypal dispute, the seller loses that dispute but wins the one he has with the post office. It seems more complicated than it needs to be, but that's how the rules are set up.
Of course, since paypal is the arbiter they can decide in favor of the seller, and there wouldn't be much you can do. I've been on the receiving end of that and have learned my lesson - I switched to using credit card funds with paypal and in the case of problem have my credit card company fight with them. Outside of USA you may not have that option though.