First- yes, the standard practice is that the buyer pays the costs of returns. And note that you should be using a Delivery Confirmed service like Expedited Parcel so that if worse comes to worst, you can show Paypal that the seller has the item and the money. With this proof, PP will refund you.
In the meantime, there is no real need for PP to get involved.
Second- I would not agree to a replacement. There is no reason to believe that it will be any better than the item you got and the time it takes to return your defective item plus the time for the replacement to arrive could take you past the 45 day Dispute deadline. Ask for money back on return.
There is no harm in asking for your return shipping to be refunded, but the seller is not required to do this. PP will not refund your return shipping.
Be cautious about the return address. You must return the item to the seller and not to the sender. While these are usually the same address, dropshippers never handle the wares they peddle. Normally the address is on the original invoice and there is no reason for the seller to supply any other. Not necessarily a red flag, maybe a pink pennant.
To sum up:
Return to seller for refund.
Do NOT use any address but the one on the invoice.
Refund only.
Delivery Confirmation.
