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goodluck with paypal
with service type payments they almost always side with the seller
to the OP it seems like you have but you may want to try to offer setup, first month, cost of domain, be deducted from the refund amount. I know it is not what you are looking for since they did have the money back guarantee but that way you get some money back and can keep the domain. Even if paypal sides with you you will end up loosing the domain.
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