I would have contacted PayPal after talking to the company. Sounds like the company I work for.
The don't charge a actual shipping. "Handling" can be any amount. Depending on the item, a couple bucks is fine and the bigger and harder the item is to handle the more the handling fee goes up.
So what the company was doing to you was baiting.
You in fact were paying for the free item by paying the extra shipping (and high) shipping charges for both items.
PayPal would have checked this. I mainly only pay with PayPal because of this.
It stops companies from ripping you off and they can't get away with this baiting crap.
Since nothing was said in the ad that there were extra charges for shipping for the free items, and they accepted your payment, I believe it is illegal for them to ask for more money unless it was an HONEST mistake and they could prove it and it makes sense to the customer.