rola86:
I'm actually going through the same thing myself right now (well, minus the UPS oddness - that sounds fishy to me) with an NES and games I bought. It was advertised as being in great condition and working almost everytime. When I got the system, it didn't work at all and one of the games had a strong odor of cat urine to it. I tried working things out with the seller and they basically ignored me, so I opened a case with eBay. Like you, they send a prepaid return label to send the item back and get a refund.
I've been through similar situations on eBay before, though rarely (most sellers seems happy to work things out). If I understand correctly, the seller asked for feedback before he even send the system? If so, that's a major red flag to me and probably means he knew it didn't work from the get go. The best and safest thing to do is to follow eBay's instructions and steps through the case. Despite their frequent and somewhat wonky site "improvements" and infurriating seller fees (charging sellers a fee on the shipping rate... really?), eBay and paypal (which eBay owns as well), is actually quite reliable when it comes to buyer protection in these such cases. I would strongly suggest simply doing what eBay says to do. Send the item back usig the shipping label they provided (I would suggest using the boxes and packing material the item was sent to you in, if it wasn't packed well when you got it, make sure to let eBay know that before returning it). It won't cost you anything and eBay will post the tracking number in the resolution center so you can follow it's progress. Witihin a few business days of the item's arrival back to the seller you should get a refund issued from eBay for the full amount you initially paid. Once that happens you're done and can leave whatever type of feedback you wish for the seller. If negative feedback is warranted, then by all means leave negative feedback.
If the seller wants to file a claim with UPS about damage, that's their choice once they have the item back, but in no way is it your responsibility to do anything with that. Just follow the instructions from eBay and you'll be protected and should get a full refund. If the seller continues to write you telling you to do this and that, simply tell them they had their chance to resolve the issues and failed, thus a case was opened and a ruling was made in your favor. If they have a problem with that, they need to talk with eBay about it, not you. Bottom line is that for whatever reason the PS3 your purchased wasn't as advertised to be and the seller basically refused to do anything about it. eBay ruled in your favor once a case was opened and you will get your money back so long as you follow the steps eBay asks you to follow.