Regarding the ban, I really don't see too much of a problem with him being banned from that server. Being banned from KO4Life seems a bit sketchy though given what seems to have happened (sounds like he just got impatient, and made a really rash decision). Either way, that decision wasn't made by ClimaxKO/bigdudle -- it was made by KO4Life staff, so there's not much bigdudle can do about that either way.
Also, just to remind you (since you seem to think otherwise), bigdudle had absolutely no say in any of it; he didn't get to handle the issue before it was taken to Paypal (because he'd opened the dispute pretty much straight after posting it), and he didn't even get to refund the amount after it was taken to Paypal, because the guy'd immediately escalated it to a chargeback (which prevents you from refunding).
I really don't see what any of this has to do with the server owner at all, let alone PSKO. The guy brought it all on himself; because of him, it's all up to Paypal to decide what happens.
People do stupid things. The situation could be very different if the guy even remotely considered having a staff member refund it for him.
But now there's an ongoing chargeback case which impacts bigdudle's Paypal account, nobody has access to that $40 for the duration of the case, and it'll take at least a week for it to be dealt with.
Clearly it was a brilliant idea.