A seller is required to ship to your confirmed paypal address which she sees after you buy the item. If that address was Canadian at the time, it explains why the seller cancelled. If it had been an American address (it is an American seller, yes? Canada is over a border, not an ocean) it is unlikely she would have cancelled as it would not have ocurred to her that she needed to.
So cancelling a sale from a buyer who lives in a country to which the seller does not ship is acceptable, and not exceptional.
The thing to do is always always always ask a seller if she is willing to ship to Canada before you bid. Then ask her what it would cost to mail the item USPS First Class International. First Class is cheaper, but large, heavy, and expensive items usually come Priority, or a seller may simply insist on Priority. Having an American address on your ebay will be of no use unless it comes out at the seller's end as your registered confirmed paypal address. If a seller sends it anywhere else she loses her seller protection.
You got your money back, and if you feel your time was wasted, - that could have been prevented by making your inquiries before bidding. It's just good manners, really. Personally, I don't see where the seller is at fault here, and I think it had a pretty good outcome. There are indeed sellers willing to fleece you at every opportunity.
Unfortunately, by declining the cancellation that seller will now have to pay fees on the sale of that dress.
