This is a pure case of too good to be true. Digg bans accounts all the time for participating in things like this. There is no way that anybody can guarantee you get to the front page. He had no control on the accounts of his friends getting banned. Many people have got there accounts banned on here for voting on too many pages or exchanging diggs. I do not think paypal will do much for you but I hope you all get your money back. Next time I suggest to be careful in making such deals without evidence that it works. I agree it is not illegal in the sense that you will get fined or go to jail but it is against Digg's terms of use to do this: "By way of example, and not as a limitation, you agree not to use the Services with the intention of artificially inflating or altering the 'digg count', blog count, comments, or any other Digg service, including by way of creating separate user accounts for the purpose of artificially altering Digg's services; giving or receiving money or other remuneration in exchange for votes; or participating in any other organized effort that in any way artificially alters the results of Digg's services."
Yep, I could make 200 accounts, digg you all, but doesn't mean you will for sure be on the main page.