I bought a license for iWork on eBay. My copy displays as "Volume License." Is this legal?"?

It is not legal. Most likely they just Googled a SN and sold that to you. A volume license is for a office or school.

Shouldn’t you have checked this first? Escpecially when buying software. Well, sucks for you but nope.

There is not a way to check beforehand. The item offered for purchase was a “download of iWork.”

Given that it’s not legit, the question becomes whether to use ebay’s “resolve a problem” function for this auction, or report illegal activity to ebay/paypal. Who has had experience and can recommend one or the other of these? Thank you.

I would go with the report illegal activity. I would also contact Apple and explain the situation to them. If someone is selling access to a multilicense they bought it could end up that apple will reward you for helping catch someone violating the terms of service of their license.