Allegro.pl is a good example of how you can get auctions right. I think they watched eBay closely and drew conclusions — they place a HUGE emphasis on fighting fraud.
As a result, it works extremely well. I have >150 transactions, both as a buyer and as a seller, with not a single problem. Oh sure, there is fraud, but it's marginal, and crazy stories like the OP's are unheard of.
This is why eBay, in spite of many efforts, is still pretty much nonexistent in Poland, while Allegro's traffic is booming.