By offering a warranty you can greatly boost buyer confidence with very little to no extra costs to yourself. I think you will find that by offering quality products with good descriptions and photos along with a good warranty will boost your sales. Keep in mind your warranty is like a buyer "security blanket" and if done correctly your warranty will almost never be used by the buyers.
Not to mention it is the FTC LAW. If your item fails to arrive in the condition it was advertised then by law, you must replace the product, or refund the customers money. If an item is not in working order, be sure to state this in your listing.
A sellers return policy for other reasons, is at the sellers discretion. But I agree...something a bit more generous than two days would not hurt. I would not state in your terms of service that shipping must be paid by the buyer, because if it is your fault, then good customer service policy would be for the seller to refund the shipping as well.
On my verbiage for payment terms of service, I state, "payment is expected within five days of close of auction, unless other arrangements have been authorized in advance."
I like to set the expectation up front, in my terms of service, but I will allow exceptions for my customers, if they ask nicely. The key is communication.
If they have not paid in that time frame, I send a reminder invoice, and if they don't reply within a week, than I open a non-paying bidder claim, recoup my selling fees, relist and move on.
I think many of the terms in the shipping paragraph are overkill. Too many negatives. Try barking less and wagging more.
Do you really want to limit sales to APO addresses? Especially since they are so far and few between anyway? So what if delivery confirmation isn't available? It doesn't prove anything anyway, and it may cost you a sale, and a happy customer. I would simply assert, "I ship next business day, after receipt of payment." (if you manage to ship SAME day, then you have "exceeded the service expectation." Kudos to you.) Service to PO Boxes is only available using USPS.
I personally have never had a customer request special packaging, and I wouldn't want to give the idea that such an option was available. As the seller, I am responsible for providing adequate packaging. (with the resources I have at my disposal)
Also, if I'm not mistaken, the improved PayPal policies no longer penalize for unconfirmed addresses for seller protection. Check the PayPal site. This is also at your discretion. Depending on the value of your item, shipping to an unconfirmed address may be a non-issue of risk. I've never had any problems with shipments to unconfirmed addresses. But my shipments tend to be low dollar items.
For whatever its worth...Hope the points are well taken, and happy selling to you.