Paid for goods via paypal and im not covered

Hello everyone ,
I brought some motorbike parts from a company off the internet for my sons chinese import bike, i paid for them via paypal and the money was taken direct from by bank account with my debit card. I ordered an upgrade engine kit and a sports air filter, the parts came to £96.90 and the postage was £16.50. When the parts arrived a few days later in a jiffy bag the parts were damaged . They were wrapped in thin foam paper, in a large bag.
My son sent them an email and no reply. The next day i phoned them, well the guy who i spoke to was very rude and said that he did not belive me and that i was lying !
He told me to email pictures of the damaged parts, and return the items to him. My son emailed the pictures and on the next day i re wrapped the parts in bubble wrap and put the in a box and returned it all in the jiffy bag which they came in. I sent this parcel by 1st class recorded delivery and it cost me £8.94. Half the cost of what they charged me.
2 days later i got a rude letter telling me that i had damaged the parts myself when putting them together and that they could not have been damaged in the post as the jiffy bag was not broken. The letter says that if i want to they can send the parts back to me to be inspected by a qualified vat registered garage and sent them a report at there findings,at my own expense.
I then phoned up my local councils trading standards and was told that they have to give me a refund as the goods are faulty, and as i paid with paypal to put a dispute in with them.
Ok so i put a dispute in with paypal, i waited a few days buy the company who i brought from did not reply. So i them decided to escalate the dispute so paypal could sort it out. After a few mins it came up with dispute closed as i was not covered by paypal :mad
I then phoned paypal to ask why ?
I was told that paypal does not cover you for faulty goods , they only cover you if you do not recieve them, but if you buy from ebay you are covered for everything !
Sorry for the long post but Im just so
Can anyone please help me ?
Caz

Hi Glasgow Girl,
Thanks for the info, i think the only option is to take them to the small claims court. I tried the bank to day as Paypal is taken from my debit card ,but paypal have covered their self again as the money is take from my debit card ,but its taken by a direct debit. So i am not covered by the claim back on my debit card. The manager at the bank told me to contact paypal again as they are regulated by the FSA and i should be covered by them.

Just cancalled my paypal direct debit !

Update
I sent the company a letter stating my rights as a consumer and that they had broken their contract, i told them they could send new motorbike parts which should reach me in useable condition or give me a full refund and If i did not here from them within 7 days i would send them a county court judgement to recover all my costs.
Today i recieved an email staying that i should recieve new motorbike parts tomorrow.
Thanks to all the people on this forum who have helped me.
Caz