Not a lawyer, I don't see any way that part, by itself, would be illegal in California. A flash hider might be a "feature" that could determine if an item was an "assault weapon" in California terms but they can be used in a range of legal applications and are not a controlled item by themselves. Nor is it controlled on the federal level.
I'd think some time spent with a lawyer could help with small claims issues. There may be some "legal aid" sorts which might offer free help, too. I've done very little with Pay Pal so don't recall their rules, etc. There may be some issues where a contract might be ambiguous, one sided or otherwise unenforceable in some ways. Perhaps requiring arbitration and they aren't arbitrating the dispute, or they have terms and conditions on dealing with account balances. Forfeiting the whole balance as "damages" seems excessive and should be addressed in the contract as to how damages are considered. "Damages" also have to have some relationship to actual damage. There seems to be little actual cost to closing a count and cutting a check or making a transfer. If you would have decided to close the account and requested transfer of your balance,outside of a dispute environment, they'd likely have closed the account and forwarded the funds via check, etc.
Added: Not sure if this is current. It may be the aspect they lean on. "(j) ammunition, firearms, or certain firearm parts or accessories, or (k) certain weapons or knives regulated under applicable law."
I would suggest this could be "ambiguous." It's not a firearm or ammunition. "Certain" without having a listing or some sort of defining characteristics says some parts or accessories are allowed and some aren't. There is no way for you to determine if that part was a problem or not. It's not regulated. Also there are issues with "boilerplate"(etc.) contracts where the two parties vary greatly in resources, familiarity with business issues, etc.