This is a known issue with Paypal.
One article I found about this:
I once experienced a time when I ordered a semi dedicated Windows server, and the service I received was horrible. Bad support, tons of downtime, and I eventually asked for my money back. No response. Issued a chargeback with Paypal and got 80% of the money back. Considering I have used the server, I found it to be enough, and I was happy about it.
The problem is, there are virtually no ways to prove you have actually received the goods you have ordered. I suspect that the most secure way to do virtual trades, is like this:
Order webhosting from a company or provider.
They send the password out through postal mail, instead of email.
Letter is received, which is physical proof.
But if he didn't send that letter? Maybe then you can file a chargeback with Paypal because you didn't receive the PHYSICAL goods (The letter with your account password).
To quote the article:
"For one thing, PayPal can't figure out how to handle payments for such virtual goods, so they rely on the good will of the buyers and sellers involved. If a buyer backs out, PayPal has no recourse but to reverse the charge (called a chargeback) or take the loss itself, which it is unwilling to do. This applies to game goods, but it also applies to ANY virtual goods, so if you are planning to sell software or music or video this way, you might have to think a bit harder.
PayPal is not built to reliably support a peer-to-peer economy."
Also worth looking into: http://www.paypalwarning.com/paypal_does_nothing