I sent an item recorded delivery to the buyer. She claimed the item was not received and filed a dispute with paypal.I provided tracking info which proves it was received. Then Paypal tell me they are investigating further and asking for more details from the buyer.They then tell me I lost... I dont get it?

There must be a way to escalate this to a higher authority . . .

Call Paypal customer service and ask for an explanation.

Call paypal and ask to speak with a supervisor. Bypass the clerks who answer the phone. File a report with the Better Business Bureau in Paypal's city and State. I have read other people in this position who have a received a refund by paypal when they have filed the claim with the Better Business Bureau.