>The chances that this case is substantially (or entirely) bogus is huge.

Then why hasn't Paypal denied it outright? As I mentioned above, there's nothing in Snopes or the other hoax sites about it either, and this event is not exactly breaking news (though that doesn't rule out the rest of your point, i.e. that Regretsy may have some kind of ax to grind).

Of course it's always good to hear both sides of the story. So why doesn't Paypal give us one? If it's false, they could blow it out of the water. But they don't.