I'm sorry the seller has been named. I'm also sorry such a simple issue seems to have been blown out of proportion. Sure, paypal rules are meant to be honoured, but I think what the OP and the seller were doing wasn't intended to defraud the company, more like the nudge-nudge-wink-wink kind of white lie. At any rate, it's not as bad as cheating on your wife, even though that's legal and this wasn't.
Seller did his best to make amends for the damaged cab, I think it was a more than fair offer, at least to me. At the same time, rubbishing the OP for demanding his money back instead of a replacement is wrong. People aren't alike, to him, having a working cab from a builder he clearly admired for the gig he was playing was important.
It does strike me as ridiculous that he would refuse the replacement. I'm sure stuff being shipped gets damaged all the time. I remember this Loopholic 5 pedal switching system i ordered from Korea. When I got it, there was a huge 4-inch scratch on the bottom surface. Product worked, so I didn't file a claim or anything -- the builder was really helpful in keeping the price down nudge-nudge-wink-wink, even though we never even talked about it (great guy, sadly no longer in business. His product was ahead of the Musicomlabs development cycle by far) -- but you have to expect stuff like that.
You guys live in America, I appreciate the laws you have about buying stuff and having the liberty to return it within 30 days for a full refund, etc. I've heard of guys that buy equipment to record albums and return it after, which is disgraceful though. Imagine a company struggling to stay afloat or being unable to hire more workers because they're stuck with too much factory-seconds inventory. I'm glad the seller offered a more than fair replacement, I don't think anyone should use this post to make decisions on buying from him. Not a fanboy (as someone mentioned earlier in this thread, hmmm), I haven't even heard of this builder before.
Still, feel sorry for the OP. Wouldn't it be great if the builder reads this and just gifts back the money to him (even minus shipping), given that the transaction was illegal

At any rate, he shouldn't be out of pocket for the entire fiasco, getting some of the cash back will go a long way toward restoring the pride of both parties. Policies or no, we all gotta adjust sometimes and this was one of those times.
-Jimmy Rage
PS: This seems to be happening a lot on TB. Someone complains about someone else without naming them. If I bought something used from someone here and got ripped off, I'd name them. But the fear of being burnt is motivating me to buy new, from a store. Hoo-yuck.