Buyer Returned Merchandise Damaged

[vedauwoo]

Hello--
To make this short I need some information before contacting PayPal.
I had a dispute with a buyer and they filed a claim for "not as described." The claim was answered by me with additional information including photos of the item in question. The buyer escalted the dispute and then contacted their credit card company for a chargeback. I gave it and offered to take the merchandise back "in original condition."
Item arrived with considerable damage even over what the buyer claimed.
Do I have any options or am I out of luck? I read on another forum that a buyer can basically send you back a box of rocks and satisfy the terms of "return" in PayPal's eyes.
Also, does anyone know if it does any good to report PayPal to the Better Business Bureau?
Thanks!
Hank