Actually, Paypal only protects *themselves*
Originally Posted by yanxfann
...as PayPal payments (PayPal payments funded via a credit card give the buyer extra protection should the seller stiff them as they can dispute the transaction with their credit card company). Personally I wouldn't touch a $500 auction that didn't accept PayPal.
Go back and read your terms & conditions on Paypal more carefully. You explicitly agree NOT to submit a chargeback, and if you do you forfeit your account (and they can go into your checking account for the money, which isn't protected).
More info at
http://www.paypalsucks.com/