If the email isn't registered, you can just refund the payment on your end. If your paypal is credit card funded, call your credit card provider and tell them that you need to file a "chargeback". Explain in full detail what happened, don't lie about anything.
None of these methods are illegal or against sythe rules. Don't give up, fight for your money. If nothing I posted above works, call paypal's customer support and explain truthfully what happened. If you're still having problems, send me a pm