There's no law compelling PayPal to offer any kind of protection. If their fine print says there's no protection, it's your choice as to whether or not to enter into any contract with them. If there's a dispute about what the fine print means, that's a civil dispute and not an issue of violating criminal laws. (Anticipating your response: No, that doesn't mean that PP can hide anything patently illegal in fine print; but neither spelling out that they have no obligation to reimburse you for bank chargebacks nor spelling out that they're the final arbiters of any disputes is illegal.)
Same issue, but Small Claims Court is the right approach for your civil claim against the buyer.
Totally disagree. The buyer engaged in fraud. If PayPal hasn't violated the terms of their agreement, there's no case vs. PayPal. Further, they have attorneys to fight for them and very deep pockets that make litigation less of a problem for them than for the buyer. Sue the buyer first, not PP. You can always try to pursue PP later if you choose to and if there's any legitimate basis to hold them responsible (I mean legally, not morally).
You may have some luck doing this, especially if he used their card. Explain to them exactly what he did and that, at a minimum, he should have just returned your watch. Explain that you have every right to post all the details publicly (because it's true) and that their son's name will forever be linked to this fraudulent transaction anytime prospective employers Google him. Tell them you just want your money back or your watch back. He can't keep both.
The only fraud occurred after delivery; so I don't think it has anything to do with USPS at all. I don't think it's a USPS matter if the fraud occurred 3 weeks after delivery just because USPS delivered the item. Local cops will just tell you that it's a civil matter. They "could" pursue it as criminal fraud if they want to; but unless you happen to know someone on the PD there, they probably won't bother and will just give you the "it's a civil matter" response. It sounds like Foo2rama might have some experience or connections in that regard; so I'd take him up on his offer to PM him.
Regarding your edit, you're confusing civil and criminal matters. He could pursue it civilly through local Small Claims Court and still refer it to criminal authorities separately, whether locally or federally, if there was a basis for federal jurisdiction. The two have nothing to do with one another and there's no such thing as a federal small claim; so your only realistic civil action is going to be Small Claims Court in his city or town.
I don't think that's going to work. PP can probably just take (or get) the money back from you one way or another because you agreed to their TOS, which includes their right to decide disputes.
If talking to his parents doesn't do you any good, just go the small-claims route in his city. He already admitted to receiving the item and you can prove everything else. Ordinarily, your travel and lodging costs aren't recoupable when you sue someone (absent a prior agreement to that effect); but the judge always has the latitude to award punitive damages whenever he feels they're warranted. Deliberate, outrageous fraud that requires the seller to fly to a local court to sue would be exactly the type of thing to which punitive damages could apply. Just let the judge know that there was no legitimate dispute; that the buyer never filed an eBay dispute; and that he simply tried to keep your watch and your money with no legitimate basis for any dispute, simply because he thought he was far enough away that you couldn't do anything about it. Ask the judge to explain to the buyer that you have every right to post the story publicly (including the docket # and outcome of the case) to warn other potential victims about what he did to you and that it would probably be in the buyer's interest to reimburse you for your expenses if he ever wants to find a job.
