While you're technically correct in what you're doing, I can somewhat sympathize with the buyer. When I was living on campus, I couldn't verify my campus address for obvious reasons. I bought some stuff on eBay and clearly didn't have a verified address, even though I had an account in good standing with plenty of positive feedback. So I emailed the seller informing him of my situation, and he went ahead with the sale.
Now I'm not sure what the circumstances are in your case, but if it is in any way similar to the situation I laid out on top, then I'm thinking you'll want to send the guy what he won. But if he's just insisting without giving any reason, then clearly you're in the right and I would suggest following DB's advice.
And that would be fine, so long as he asked those questions BEFORE bidding or entering the auction. In this case, they buyer did not. A buyer's situation is irrelevant here. The auction stated the terms clearly and directly. If the buyer would like to see if a condition or exception can be made, then it is the buyer's responsibility to ask those things before he enters the contract.
If a seller wanted to make a judgment call like that, then fine so long as it is agreed upon BEFORE a bid is place. Waiting until the auction is over is not the proper course of action to take. It is irresponsible of a buyer to act in that manner.
There are plenty of sellers who don't require a confirmed address, so if one seller refuses there are other auctions a buyer can bid on.
eBay auctions are legal contracts, believe it or not. Getting wrapped up in a contract where you obviously and knowingly cannot fulfill your required role is a ridiculous thing for any person to do.
Also, an alternate address (e.g. a dorm address) can be confirmed. There is a procedure in place for such an issue, so there is really no excuse for a person to not have a confirmed address on PayPal.