I had the same issue and was told by AMEX that the limit is due to people wanting to use online casinos and running up their card balances and not being able to pay them when they inevitably lose. Do online casino's take paypal as a way of creating a balance? Maybe. I've never done online gambling.

But the other reasons cited here could be just as valid. If there was an unlimited, or much higher, paypal limit, you could certainly run up your membership rewards balance by paying a 'friend's' account, who basically just funnels the money back to you (minus the paypal commission, of course). I guess you could also artificially up your spending profile to get to that magic number (whatever it is) that gets you the Centurion invitation.