If I was in your shoes I would go full bore after them. Get eBay, USPS involved.
I know that you believe you will break even with the USPS insurance, but why let the creeps go on? For me the satisfaction of getting them chopped would be better than my money back.
I already reported that particular auction, but besides that I don't know what to do. I agree fully... I would give up the cash if I could just stop the fraud.
