i dont really see what the problem is....
he sent you money - you sent him the watch...you obviously have tracking number or something to prove to PP that you sent him a package, right?
if so, thats it - you can tell that guy to F@ck himself. All he'll get once he'll escalate the dispute is the following message...and i quote "PayPal's Buyer Complaint Policy applies to the shipment of goods but not to disputes about merchandise quality."
case closed...have a nice day