A number of people, including me, have fallen into this trap. Even though e-bay's default setting is 'no returns accepted', PayPal don't accept this unless the listing says 'AS IS' and you make it clear the card is untested and may not work.
If you listed the card as working and the buyer says its not, then PayPal will side with the buyer. If he has broken it he's not going to admit it.
Your best bet is to call his bluff and have the card returned to you if there is sufficient value in it (or even if their isn't, just so that you deprive him of it - ive done this as a matter of principle). When you get it back make the refund.
Also it is worth noting that certain graphics cards simply refuse to work with certain motherboards. For those of us that have built and sold PC's its a common problem. Your buyer could well be trying to pull a fast one but it is possible that there genuinely is a problem.