Hello 'sk8only',
Sorry, no, it's one or the other, - Cancellation, or Unpaid item. I have no idea what transpired between you and the buyer to cause him to refuse the cancellation, but at this point I would say give ebay a call and explain the problem to them. They may be able to make an adjustment and get you back your fees.
At the top right of the page here under Customer Support, choose Customer Support again, and then the Contact eBay tab. You'll get a phone number to call and a number code which expires, so do it when you're ready to call. It's a free call, and you have nothing to lose. No guarantees, but you won't get anything if you don't ask.
Good luck. 🙂