Yet Another Extortion Case

At 3:34pm, recieved the following via eBay Messages:

Dear apn_enterprise,

This hat is NOT a beret. It is not even close to a beret, which is a French hat shaped like a pancake. Your hat is either a chef's b on net OR some kind of religious head wear.
Your photographs are purposely deceptive.
I want a FULL refund or I will leave negative feedback to BEWARE and warn EBayers, file a fraud claim with my CitiBank card, and file a PayPal complaint.
You know these aren't berets. You are trying to sell some kind of WEIRD hat.
Sincerely,
Buyer

At 3:49pm (a full 15 minutes after sending us that message), buyer opens a SNAD case:

Hi apn_enterprise,
eBay opened a case in the Resolution Center because buyer has a problem with an item purchased from you.
In most cases, buyers and sellers can resolve these types of issues through direct communication. We encourage you to respond to this case by May 11, 2011. If you aren't able to work things out, you or the buyer can contact eBay Customer Support to review this case and make a final decision.

Details the buyer provided:
Problem: The item is not as described
The buyer has already contacted you through eBay Messages
The buyer paid on Apr 29, 2011
The item is wrong
You have not responded to the buyer
You aren't working with the buyer to solve the problem

Additional information:
"This hat is NOT a beret. A beret is a specific type of hat that is flat like a pancake with only a slight rise to it. The hat I received is tall and poufy liuke a chef's hat or a clown's hat OR I think it is some kind of Indian (as in the country of India) national costume hat or religious hat. This is the kind of hat that you see an Indian man wear in a bad TV show so the audience can immediately identify the character's religion or country of origin -- which isn't France -- that's for sure!!! The seller's photos are deceptive as they are taken like an areial view, so you cannot see how how tall and puffed up the hat is. The seller is NOT being honest with the description. Maybe the seller does not understand English or the French word "beret." I want a full refund."

The buyer wants:
A full refund

Transaction Information:
We've placed a hold on this PayPal transaction while you and the buyer work to resolve this case.

We responded to the case after speaking to eBay Customer Service and requested a return for a refund (buyer's preference), which means they would pay for return shipping.

At 4:55pm, received following email to our personal email address:

RE: Item No. 250652107182

Dear Mr. or Ms. XXXXXX (they used my name),

I will be returning the orange sequin headdress. This is a turban style hat -- not a beret.

I expect a full refund AND ALSO return postage.

You have made the error and have wasted my time repackaging the item. You have wasted my money on a return envelope. You have wasted my gasoline driving to the post office. You have wasted my time standing in line at the post office.

And you sure as heck can pay my return postage amount. If you choose not to reimburse me the additional return postage, I will leave negative feedback as well as negative tweets and blogs.
Sincerely,
XXXXXXX

What are our courses of actions now regarding this PITA? Please help!

==
Later:
Just got another message from the buyer:

"Do you not understand English? According to EBay, the Buyer and Seller can choose to make a different agreement.
Here's the agreement I want: You pay my return shipping. This is NOT in violation of EBay rules.

Do you choose to pay the return shipping?"

Crazy!
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The CS rep already reported them for Feedback Extortion on our behalf.