Sorry to hear the bad news, I'm sure you'll use insurance in the future to avoid this exact situation. It blows that he refused delivery/wasn't home/had P.O. hold package, and blame could be placed on him. Unfortunately the bottom line is if he payed with paypal goods you are going to be out of the cards and money shortly.
I hope it turns up, and badger the post office as much as possible. Call the local branch where the package was last seen and speak with the postmaster. Hopefully they can get to the bottom of this.