if thief sells it, theyre not selling "the item all legally" because it's stolen merchandise.
As for paypal refunding because you didnt respond - you agreed to that when you signed up. Sorry you got ill and that it happened to you, but you agreed to it, so you dont really have any room to complain. They enforce this 7 day limit for a response equally on all sellers. Sucks, I know, but that's their policy.
I dont know what the buyer claimed when did the chargeback, but if buyer claims s/he didnt get the item, then you should have filed insurance claim for lost parcel. (if that is what happened and if you didnt insure it inn the first place, well, that's your own fault -- always insure what youre not willing to lose out on).
If buyer claimed SNAD, then they were supposed to return it to you.
regarding chargebacks of $450 and $1100 - I dont know the details of the incidents, but they should have been sent with signature required (and better if would have been sent UPS with restricted delivery to where only the accountholder could sign). I dont know if that would have offered 100% protection, but if the sellers didnt do this, that's where they went wrong.
I'm not saying there's not problems with ebay and paypal (there definately are some problems that need resolving), just saying that if sellers dont follow the procedures outlined and agreed to, then things will definately go wrong. (and no, I dont know about if followed procedures on the $450 and $1100, but by your own admission you didnt on your case)
Perhaps people on Trust & Safety forums on ebay can help ya more http://forums.ebay.com/db2/forum.jspa?forumID=107