Need advice regarding potential Paypal dispute

Last month, I purchased a month-old iphone 4 from a user on a different site via Paypal. The seller claimed the iphone 4 was in immaculate condition, with not damage or dead pixels or any sort. The device took over a month to receive, the seller claimed it was almost stolen twice, with the exact same story each (someone tried to open the package and ripped off destination name and address) I finally received the device after threatening to file a PP dispute. The device came very poorly packaged, with it being simply an iphone box covered in a large paper envelope with no added padding whatsoever. The device was actually OUTSIDE THE BOX, the mailman even asked me to open it in front of him since he was worried. The screen protector on the phone was nearly ripped, there was a cluster of dead pixels on the bottom right, and accessories he claimed in the ad weren't there. I notified the seller, stating that I'd give it a few more days to see if the phone worked properly after I received my microsim. I did, asked for a refund, and he's claiming any defects/damage was somehow my fault, and that he was in no error in regards shipping. My biggest issue being the dead pixels, which was probably already there, he just didn't notice or lied about it. He did insure the device, but not for full value (could that be considered fraud in this context?). I payed 2/3rd using my Bank of America debit card and 1/3rd cash via Paypal. What are my options here? Do I even have a case?

I don't have an attorney, and it would probably outweigh the cost. The mailman is local and can probably get his name from the PO, but no he did not see me turn on the device or even the screen.Would the post office even accept a claim for minor damage? 

EDIT:

I've decided to start the process, the seller is aware. I don't have a great case, unless the paypal guys are tech geeks familiar with dead pixels and such. Guess at worse I end up with not-so-perfect iphone 4. 

I've gathered some screenshots of the seller's ad, including his contradictory statements during the process as well as pictures of the device. I'll see if I can get any form of evidence from the post office, even if just a written statement that the device was poorly packaged. I have a question, I used a visa debit card from Bank of America to pay for 2/3rds of the purchase, do I have any protection in that respect? 

Update (sorry for the double post): Paypal closed the case right away, unable to rule in my favor:

So... I assume I'm screwed. 

^ Yep, but PP still couldn't decide the claim... even though they never asked for further proof, and just shut the case. It's stupid. And I've read that debit cards have little to no protection, especially from third-party sellers. 

Oh well, I figure I can just sell the iphone at a loss. The dead pixels (it's about the equivalent of one dead pixel on a standard res screen) really isn't that big a deal, I'm just mad that I didn't get what I asked for, and the seller's arrogance. 

EDIT: I just filed a claim with my bank. Odds are low, but I don't want Paypal getting away with this.