Escalating Paypal Claim, Am I in the right or wrong?

Whether you are correct or not really depends on the description shown on the ebay listing. If it may hint at any of the above then legally they may be in the right. But if it states specifics that were not adhered to you have every right to want to ship the phone back.. I am also an extensive ebay user and have to say out of about 500+ transactions I have only had problems twice in 10 years... Good Luck!