I sold a car stereo once on ebay that did have a fault, but this was clearly described in the ad, and photo's of the fault (a cable was missing its connector) were provided in the ad.
The guy received the stereo and left positive feedback, actually using the words "as described". A week later he emailed me saying the stereo had cought fire and he wanted a refund.
I refused, cos for all I know he might have wired it up wrong. He opened a dispute. By then I had withdrawn the funds from paypal (normally as soon as I get confirmation of its arrival by the buyer). At this stage I also cancelled the direct debit to paypal from my bank.
I spoke to ebay and described the situation, and that he was saying the missing connector was the cause of the fire. I said it worked fine for me (which it did) and also that the missing connector was clearly described. They said I would have nothing to worry about.
Then after a certain time, they told him to send it back at his cost. I got it back, could see the blackened wires but still disputed the refund....he hadn't sent it back in its original condition (it was working when I sent it!) and I dispute the fire was my fault. Phoned ebay again and they said "the only way forward with this is to refund the buyer" I said I didn't agree.
Next thing I got an email saying they had refunded the buyer, tried to take the money from my paypal but couldn't (cos I'd cancelled the d/d) and my balance was now -£xxx. It said I could dispute their decision, so I did and they dropped it.
If you didn't remove the money in time, and they've locked it, then you cant stop them giving it back to the buyer. This is the bad side of ebay...they do generally side with the buyer....even though its the seller who pay the fees! In my case they ignored my previous feedback, but someone says they now take that into consideration.
The buyer admits it was working fine when they received it, and Canon camera's, especially the xD models are bullet proof. I wonder if they used an incompatible memory card or something? If the buyer isn't willing to work with you on this, then you are stuck.
Lets hope someone from ebay with a brain looks at your case!