Has the buyer told you this was the correct address? Maybe they moved and forgot to update their contact info?
In any case, I myself wouldn't waste any more time and money on a package that keeps coming back. Since you sent to a confirmed address with DC and as long as you sent it within 7 days, you're covered, but covered for what?? I would just refund the whole thing now and be done with it. Here's a link to the PP Seller Protection Policy:
https://www.paypal.com/cgi-bin/webscr?cmd=xpt/cps/secur...erPPOverview-outside
You might also try to google the address and see what you get.
Odd situation isn't it I would just apologise and refund.