Why do you need either eBay or PP to help with this?
Go to the original payment on your PP account. Hover over the status and you should see 'refund'.
Click.
You can then refund all or part of the payment.
Your PP fee for accepting the payment will also be returned, so the buyer gets all her money back.
This assumes that the item is back in the seller's hands. The seller should NOT refund until he is satisfied about the status* of the item.
If you do nothing else, the dispute will close itself.
*Usually the unwanted item is returned. Either the buyer or the seller can pay the return shipping.
Sometimes the seller will accept photographs of the unwanted/damaged item.