I used PayPal extensively in 2000-2002, but I haven't dealt with it since then. Although it may have changed, my experience is that it is a terrible corporation, with absolutely no regard for clients. It doesn't seem to matter who's at fault, they just do what will be the least hassle to them in the short term -- and sometimes that means stealing your money, and then ignoring you. From what I remember, their dispute process is a joke. It's basically a cover for them to buy time while they do whatever they feel like.
Of course, I sold some D2 items, which was allowed. I've never played WoW, but I gather what you're doing isn't.... so I'm not sure. My instinct would be to keep the money though, and hold onto it until the issue is "resolved", rather than have paypal "hold" (steal) it for you. You're really lucky that you got the money out before Paypal's grubby hands grabbed it away.
Then again, if you want to avoid any hassle yourself, you could put the money back in. Just never expect to see it again, because you won't.
In the "real" world, if someone steals a credit card (for example), and then buys some expensive suits at the mall, the store at the mall does not lose that money without having the suits returned -- the credit card company has to cover the loss, if it can't be recovered from the thief. In the paypal world, the store would lose the suits and the money, because it's easier for paypal to steal money from their own users in order to placate a big company, than to do things honestly. I probably lost $5000 in this way, over a couple months.
