Well, OFT's guidance ref: the consumer protection (distance selling) regulations says:
In general the DSRs do not affect the consumer’s rights under other
legislation, for example the Sale of Goods Act 1979 or the Supply
of Goods and Services Act 1982. If the goods or services do not
conform to the contract and consumers exercise their rights to reject
them, you will have to refund their money.
If goods develop a fault within the first six months of being sold,
the law presumes that the fault was there when you sold the goods –
unless you can show otherwise. You should not charge return costs
for goods that have been rejected because they are faulty.
If you offer a replacement for faulty goods that have been returned
by the consumer, the cancellation rights under the DSRs will run for
seven working days from the day after the day the consumer
receives the replacement goods, provided you have previously
complied with the information giving provisions in the DSRs –
see paragraph 3.10 for more information’.
But I'm not aware of Paypal's specific rules. However, if the contract is serviced in the uk (it was because it was posted to you), and the company trades in the uk (.co.uk - so it could be argued that it does), then you can claim that the DSRs apply, in which case their company policys must meet or exceed the provisions of the DSRs.
Chris