I wouldn't be surprised if this gets locked because it really belongs in the negative feedback section where only the buyer and seller are suppose to post. But since you asked I can see fault on both although I think he really should return the part.
On his part he should of listed detailed information about EACH part listed for sale and what it fit. I never really look at the "Fits 93-02 F body" in the top when there are multiple parts listed because every part is different. For example some TB's wont fit all LS1 cars. On your end as the buyer you should have done more due diligence to make sure you knew what you were buying due to the limited description. I imagine a quick look at UMI's website would have informed you that the LT and LS ones were different. But I would take it as a learning experience and next time get a part number or what exactly it was installed on. Because honestly I've seen a lot of times where the seller is just misinformed and really doesn't know what there talking about opposed to trying to rip someone off.
Your next point about the process of Guy sends money for part thru paypal,
Guys receives part and is wrong part, Refund is issued by seller, part is shipped back to seller.
Especially after a deal goes bad nobody wants to go first on the return process. But the simple fact is that someone has to, I've honestly seen it done both ways so I really wouldn't say there's a "right" way.