Firstly I hope you have a note or picture of IMEI number of the phone to make sure they haven't swapped it for another.
If you have and they do send a different one you can appeal.
Onto the bad bit, if they open a case, they send the phone back to you at their cost with tracked postage to prove it arrived with you. If they do this and either the phone is the one you sent out or you can't prove either way, a refund will be forced from your paypal. Your paypal will go into minus figures and it will be them chasing you to bring the balance back to zero or more - you'll have some time to do this but unfortunately the refund can't really be blocked.
Of course you could always defend that the phone is not in the condition sent out. If you're lucky ebay will give them a refund out of their own pockets and you're ok then.