Bad situation you're in, sorry to hear it. PayPal in general, in my findings, is a shady organization that's rather unhelpful. I got scammed on eBay about 4 years ago and PayPal didn't help me at all when they should have because I followed all of their seller protection guidelines. I sold a brand new Playstation 3 and games and what not, person paid with paypal, i shipped to buyers VERIFIED address. Delivery was confirmed, signature was also obtained at time of delivery. 30 days down the road I get a PayPal dispute from the buyer claiming that someone made an unauthorized purchase with the account. Long and the short of it, PayPal settled in favor of the buyers (scammers) credit card company chargeback. They then debited my PayPal account the $500 some odd dollars and put me that amount negative in my account. So I was out $500 and a Playstation 3, PayPal did not a god damn thing to help me. My account was eventually closed and sent to a collection agency for the alleged $500 that I owed them. I haven't used them since only until recently where I have been using my room mates account for buying/selling camera and RC equipment on the forums.
As for PayPal Gift. Most horrible thing ever IMHO. Just gives scammers an easy to way rip off people that don't know any better about PayPal's policies. I'm ALWAYS willing to accept a 3% surcharge knowing that I (should) be protected in the transaction. I'm still leery of PayPal, and I use their services now with EXTREME caution.
I hope you get your money back, or a camera. Honestly however I wouldn't hold your breath.
Stories like the above just seem crazy to me, because it makes me wonder why any of us use PayPal. Is that within PayPal's rules? Sure seems like you did everything perfectly as a seller. Why would you bear the expense?