Same problem here.
Refunds have always gone through smoothly and automatically for me and this is the first time it has happened, but internet search reveals it is perhaps not a one-off. Plenty of people seem to be experiencing it.
Having wasted an hour on the phone to Paypal and livechat with ebay, here's what I know.
Ebay tell paypal to put the payment on hold when a case is opened. In this case, the refund buyer option on ebay failed, generating the message "There was a problem sending your refund to the buyer. Go to Paypal". This is because, rather brilliantly, putting the payment on hold has prevented me from refunding the buyer. Ebay's refund option doesn't work and paypal doesn't have have the refund option available, because under instruction from ebay, they've put it in payment hold limbo.
Instead, ebay advised to send the buyer the refund amount from other paypal funds. The case will then close on ebay and this will release the hold on the original paypal payment. But don't worry! (they said) It won't double refund or anything. Of course not.
