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What is the best way to do this with paypal? as an item dispute?

I feel like an idiot...

In PayPal:
1) Go to the transaction details
2) Click the link in the box at the bottom of the page to go to the resolution centre

Remember 2 things:
1) PayPal do not want to incur chargebacks from your bank and that you are able to instruct your bank to recall the money
2) #1 motivates them to ensure that they manage the refund and not your bank

So if PayPal do not accomodate you, then speak to your bank to chargeback the transaction (refund you directly). But do give PayPal all of the chances to do this themselves rather than getting your bank to do it before PayPal could've reasonably sorted it.