So I quit using paypal altogether as they've screwed with me a few times (holding money randomly before releasing it, dipping into my linked bank account with no reason given other than "oops, our bad!", returning money to a buyer from myself after he claimed he never received the item despite me having tracked shipping, etc etc). My wife works in a bank and says on average her branch alone deals with 10 paypal fraud issues PER WEEK! Just her branch!
Well here's another lovely story of paypal's inherit evil. Buyer disputed item, paypal sides with buyer, tells him to destroy item to get refund. Buyer destroys item, seller of course disputes this but is out his item and his money. There are better alternatives: google checkout, amazon payments, etc. Seriously paypal is the worst system out there, quit using it! Merchants, provide alternatives! Go to www.paypalsucks.com to read the horror stories. You can be totally legit and still get screwed. Give it time.