Then, we are told, the buyer contracts with the seller to pay FOB shipping point (allowed by our Uniform Commercial Code). This means the buyer assumed the risks of non-delivery beyond the shipping point.
Those are contradictory positions.
If I understand your statement there is no contradiction.
Regardless of whatever agreement/contract you have with the buyer, or what the UCC says, by accepting standard PayPal as payment you have a separate and unrelated contract with PayPal to provide proof of delivery (to the address they specify) if asked. If your contract with PayPal is in conflict with your contract with the buyer, the failure is yours, not PayPal's.
If PayPal demands proof of delivery and you cannot provide it, PayPal will remove the money from your account, or suspend your account until you return the money to them.
I suppose you could challenge PayPal in court, but your evidence would be pretty thin since you will never get PayPal to agree to change their terms of use to comply with the particulars of your agreement with your buyer. My guess is a judge would tell you to just secure a different form of payment that does not conflict with the conditions of your agreement with your buyer.
Take this example:
Let's say I sell a knife to my next door neighbor who pays me with PayPal, and then picks up the knife from me in person. I get him to sign a receipt for it, make a copy of his drivers license, and the transaction is recorded by my security cameras and microphones.
A few days later he files a claim with PayPal that he never received the knife. PayPal then asks me for the proof of delivery, and I tell them about the buyer living next door to my house and picking up his purchase in person, signing a receipt and everything. PayPal will say, sorry, but if you can't prove delivery by USPS, UPS, FedEx etc.. you will have the funds removed from your account and returned to the buyer.
It may seem silly to have to mail the knife to your next door neighbor, but by accepting the money from PayPal I agreed to deliver, with confirmation, the sold item to the address PayPal provides me using an approved carrier. I failed to do that, so PayPal is justified in their actions. They don't, and shouldn't care why I failed to follow the rules I agreed to when I accepted the funds.
If the OP wants his money back he will have to do the same thing I would have to do to my neighbor, sue the buyer in court, or try to have him/her arrested for theft/fraud.