I have a feeling you're right--that this is a case of misrepresentation.

Here's a copy of the email received from the seller:

"Hi, thanks for the pictures. The size and the shape looks like another round object made that ding, like another bike frame or a tool handle? There doesn't seem to be a scratch. The "edges" are soft and round, so it does not affect the structural integrity. Guessing from the pictures I'd say the ding is only visible under certain light angles on a dust-free surface. I don't think the ding was already there when I auctioned the bike. I had a close look at the auction pictures. There is no indication for that ding while it would even be hard to identify it on the pictures. I understand your frustration. It would always be nice to get used things in perfect condition like new.

"I consider this ding as a cosmetic problem. It might have been occurred at the bike shop. It might have happened during transport. It might have been there while I still owned it and I didn't notice it. In case it was already there: If it's a cosmetic problem, it's covered by selling the item as "used". If it's a structural problem already present during the auction, I'll reimburse you the auction prize plus the shipping costs if the frame begins to develop a crack at this ding during the next 12 months. We both think the damage is most likely cosmetic, but I want to give you peace of mind. In this case, just send the bicycle back and I'll fully reimburse you. If it happened after leaving my house: I sold it "local pick-up" and agreeing on going the extra mile to get it to the buyer does not make me responsible. This is why I prefer to sell "local pick-up": the buyer has immediately the opportunity to inspect the item, take over any risk and pay cash or just walk away. No hassle, no misunderstandings, no frustrations (on both ends). It is a cosmetic problem, but offering you full reimbursement puts all the risk on me and I want you to have peace of mind."

And here's a copy of the email I plan on sending to the seller:

"[seller],

I think we both agree that the dent is most likely cosmetic. Where
we disagree is on the issue of your obligation to disclose significant
cosmetic problems in the description of the item. I would contend that this damage
is significant, and that it significantly affects the value of the bike.

I explicitly asked during bidding whether there were any dents, rust areas,
etc, to which you replied that there were not.

Because of this misrepresentation, I'm going to be filing a claim with paypal and,
potentially, with my credit card company, seeking compensation for the
damage.

[me]"

...
Does this sound fair? I'm not trying to extort money here, I just want a fair deal, and I want whoever is responsible to compensate.

I know a lot of us use ebay, so hopefully my experience here is instructional.