IANAL but I am actually with PayPal on this. It is either A or B.

It all comes down to the payment recipient's obligations to you, the sender, if the project flops and you never see the product. The seller either has an obligation to refund you the money or not. There is no middle ground.

The question that is left open is whether it is A or B. PayPal is very much skewed in favour of the buyer. I am not saying that it is a good thing but you need to keep that in mind. Treating the down payments as pre-selling makes it easier for them to cover you, the buyer, so they choose that option as the default. You need to convince them otherwise.