I've heard that it's not a good idea to accept PayPal payments in exchange for Bitcoin. Why?
First of all, it is likely a violation of PayPal's Acceptable Use Policy as of Oct 2011:
3(h) involve currency exchanges or check cashing businesses
Given this, it's unlikely that PayPal would be amenable to helping at best, and may close your account (and freeze the funds it had for six months) at worst.
Another chief problem is the high likelihood of chargebacks. PayPal has generally sided with the buyer when any dispute is brought against the seller for any reason. For this reason alone, it's best to accept Bitcoin only when you trust the buyer and have some influence on their reputation.
Furthermore, Paypal has high fees (current 2.9% + $0.30 USD).
As PayPal is not a bank and reserves the right to freeze your account for whatever reason they deem fits them, you should never use PayPal, unless you can afford to lose your money, or are prepared to take them to court and win, should they steal your funds.
While this is not specific to BitCoin per so, it is probably likelier to happen with edge cases that PayPal for some reason might be likelier to see as a threat to their interests or business model than the everyday type of transactions that make up the bulk of their volume of business.
You should NEVER use Pay Pal. As other readers have noted, they do what the danged well want to do.
And if they make a mistake, which happens regularly, they will NEVER admit their mistake and give you your money back. Plain pure and simple! I know.
So using Pay Pal is an invite to lose your money. It has happened to 100's of thousands including me.
I am actively seeking an acceptable alternative to pay pal, but so far, no go.
PayPal it is a Bank, it became a Luxembourg Bank in 2007 ( http://tamebay.com/2007/05/paypal-becomes-a-bank-no-longer-under-fsa.html )