Emily, I would take a deep breath and take a step back to look at this logically. You both have over-reacted to this situation. In these uncertain times, it behooves us all to keep our heads. There are way more important things happening.
That being said, it was your decision that initiated the problem, but that doesn't excuse the buyer. You each are responsible for your own actions. (Not eBay, not PayPal. They did nothing inappropriate here.) Ebay doesn't have control over a buyer's behavior; that is on him alone.
The time for assessing one's risk tolerance is prior to listing. Not after the fact when it is time to ship the item. You failed to meet your contractual obligation to the buyer, and the negative feedback is the consequence of the decision to cancel the transaction. A refund doesn't erase the failure to fulfill the contract. So it is understandable for a buyer to be upset when his good faith effort (the payment) is rebuffed. However, it sounds like the buyer completely lost his head.
If he has threatened you with bodily harm, that is a criminal offense. If he has, then you should report him both to eBay and the local police. If he has not, then I would drop the matter, cease answering any messages if you haven't already. Add him to your blocked buyer list.
As for suing him for libel, that is for a legal expert, not the community forums. I would point out that you have also denigrated him in print as well, threatening him with the police and labeling him as "unhinged." Under the circumstances, where both parties are guilty of some poor judgement, the better person should walk away.
