Bought painting, never received (the money sent through Paypal)

I'm in Indiana, the seller is in New York.

Through a community board on Live Journal I bought a painting from a well-known user who had perfect feedback on ebay. I did NOT buy the painting on ebay, but sent the money ($1500 through Paypal) and never received the painting. The seller said she had to use the money for an emergency financial problem and didn't have enough to cover the shipping of the painting. She refused to correspond with me after this and my lawyer says that since it's in a different state there's really nothing I can do about it. He said taking her to court MIGHT work but would be cost-prohibitive, and I can't use small claims because of separate states. Is this true? I don't see how this can't be some kind of internet fraud. I've kept every correspondence I've had with her along with messages on the Live Journal board. During this time, she's bought an expensive tattoo and several expensive vinyl toys, flagrantly showing them off on her flickr photostream. I'm just about ready to puke. This started in February.

[AFFA]

I wish to inform you that you may file a suit for breach of contract. In this regard when other party has accepted the benefit then contract may be implied from terms of contract. You may issue a notice to the other party regarding the fact that if your money is not returned then you will take legal action. In case if the person does not pay then you may file a lawsuit. Alternatively you may file a complaint with Federal Trade Commission. You may also file a complaint with IC3. You may also file a complaint within 45 days of the payment with Paypal Dispute Resolution Center.

AFF