eBay and Reputation

Stories like this demonstrate how broken the eBay/Paypal system is. I've been trying to think of a practical solution to fully fix the business model to no avail. Escrow services seem to be the only way to be reasonably protected but that scales poorly, is costly, and is difficult for high-tech or esoteric transactions.

eBay is one of the first and most successful examples of a reputation-based identity system, yet is still remarkably flawed. Is it because people are naive to the concept of reputation, greed/ignorance leading them to carry out deals with people with no/poor feedback, or reputations simply not being relevant to peer-to-peer commerce? Such systems will never fully defend against someone willing to throw away their identity to score a quick buck, but the anecdotal evidence is everywhere and eBay's reputation as a scammer's haven is becoming solidified.

The above story doesn't detail buyer's feedback, but it is definitely relevant.