OK, this thread seems to be the precursor to the new thread where PayPal have actually taken final action against the account now.
Franks advice was very sound, but of course you had no access to your account. A way around that would have been to phone PayPal, request those refunds be processed to your customers.
What's happened here is everything has compounded. Rec Flag, account suspension, account review, items not received disputes, which all feed into the review .... and , well, it snow balls.
Without a really effective open line of communication with PayPal, this type of case will end up in a really bad place 100% of the time, because the problems all start backing up once you have no way of completing customer's orders.
For those that do drop ship, especially from China and rely on sales to pay for stock, read this carefully and act accordingly, because you could also find yourself in the same situation and you need to have a plan on how to get passed it if you do.