I know that many of these stories are true. I see them posted on chat forums like this one all the time... but, I also know that there are far more people that benefit from PayPal than those that have been burned by them.
Many folks tout that if you are going to do serious business online, then you should grow up and get yourself a merchant account. A merchant account is certainly a must have in most businesses, but in many niches, a PayPal account is also a must have.
If your primary business is selling on eBay, then you are a fool to think that a merchant account is better than a PayPal account.
Most Internet marketers are small time and make a few sales a week via PayPal. If you are marketing products to these people, then a PayPal account is also a must have. These guys usually have a set amount of cash sitting in their accounts that they use as mad money... and lots of mad money customers can be very profitable for you.
Many of the complaints that I read are about PayPal asking for your social security number or photocopy of your ID. Don't you think that a merchant account bank wants those same things?
The bottom line is that PayPal is the largest peer to peer and B to C payment service in the world. This is not going to change anytime soon, so rather than harping on the horror stories, forums like this one should focus on ways to avoid getting yourself into these horror story situations.
There are many, many serious marketers that use PayPal to generate tens of thousands of dollars in sales a week. I'm willing to bet that quite a few of these marketers would lose a substantial amount of business if they were to "grow up" and start using a merchant account.
Let the flaming begin