Thanks to everyone that responded! Keep in mind a couple of things:

PayPal did their job. I asked them to deliver cash to a person---and they did successfully.
They also make their complaint process (I tried it yesterday) available for only 30 days after the transaction.
I don't want to rip off Paypal or the credit card company: it's this lady that robbed me, not them.
On top of that, I'd never diable my ability to use paypal. I plan on selling alot of baseball cards and coins (not too many chips!) on ebay and it would be fiscal-suicide to make Paypal unavailable to me for a few hundred bucks.
I think I may pursue the postal inspector option and see what happens. Is that considered fraud through the mails if nothing was ever pu tin the mail?
Thank you to everyone for your suggestions. It was a learning experience for me.