You won't lose anything. Refund him the money he paid and submit a Cancel Order Request to reverse the transaction and to recoup your selling fees. (Make certain that he has sent you the messages stating he doesn't want this through ebay Messages.) This is done via the Resolution Centre and there should be a drop-down option on the right of the item itself.
Make sure you pick the reason that the buyer doesn't want it. Then check your dashboard in about a week or three to make sure you don't get a defect for it, you shouldn't but it pays to double-check.
It's a pain in the rear but not your fault and better a buyer refunded upfront than one who receives something he doesn't want and causes something more problematic for you down the road.
