Good read, I use Paypal pretty frequently and I've never ran into this problem, but it's always in the back of my mind. It's nice to know that they will work with you. Also, those clients sounded terrible.
I've had a few issues in the past relating to charge back from clients and so on. Unless substantial proof is submitted by you, you've got no hope in claiming the money.
Conned out of quite a few thousand because of their ToC's.
"From where I was sitting, the outcome should have been immediately clear to them after receiving all my proof, but it still took till the next day to get the answer, and in this minor period of time I was repeatedly expecting the worse, that Paypal would side with the ‘poor aggrieved client’."
He's aware that he's not the only case PayPal deal with?