As someone who has sold a number of items on eBay and Amazon, I would advise you just to take the item back. If he was really scamming you, then I would doubt that he would go to the trouble of paying the shipping and sending you the item back. Sellers runs into this all the time. Retailers certainly do. Retailers often have to take customers at their word on returns, even if the customers are clearly full of it.
You said no refunds, but you didn't disclaim all warranties (there are implied warranties under the law) or sell it "as is." Perhaps you would win if this was ever hashed out, but you might not. You admit that he might be having the problem he is describing. There is nothing indicating that he is lying to you besides the fact that you tested a few times before shipping it out.
It sucks, but this is part of the cost of selling items. Just because you sell something on eBay doesn't mean that you escape these sorts of hassles.
The guy could file a dispute with PayPal and win. If you fight him, he may get the money back and you get negative feedback. Why not just take the item back, get your fees refunded, refund him, test it again and resell the item with a higher price to compensate you for the trouble that you might face in future. Perhaps make a point of disclaiming all warranties and selling the item "as is" in the next listing.