At a guess, it would depend if the dealer REFUNDED the money via Paypal or TRANSFERRED the money via Paypal.
If the dealer refunded using the Paypal refund feature, then yes, the customer is being an ass. If the dealer transferred money, then the customer is right to insist as the dealer can just make a Paypal reversal once the watch is sent and Paypal will rule in his favour when the inevitable dispute arrives as the sender didn't use the Paypal Approved address.
As for Sash being removed as a dealer from The Dark Side (RWI), there were apparently reasons, and it's not a matter for us to immediately take knee-jerk sides on without getting all the info. Tim, the head honcho of RWI, doesn't have an ulteriour agenda (even if one/some of the admins there do) and he would not throw someone off without what he thought was a good reason.