Bang on right.
http://www.theguardian.com/money/2014/aug/09/paypal-buyer-protection-ebay-fraud
You simply aren't covered by paypal/ebay if you collect in person as it negates the proof of delivery.
I wonder what happens if you take the funds out of your paypal account immediately - do they charge it to your associated bank account when they try and 'reverse' the dodgy transaction. Seems like a total con to me by Paypal anyway - I don't see how it's fair that the seller is penalised if the paypal system has been compromised - they should just improve their security and take the hit whilst it remains not secure enough.