Yes I am still researching it, making some headway too.

This seems to be my working plan:

1) Make the stipulation that I am not trading a currency, that I am instead providing a service.

So, trading a currency would look like: Someone funds me Paypal and I fund them BTC.

But in essence what I am doing is being paid to go and purchase BTC on the market and return them to that person, at a cost.

2) Make sure that person sends me a high quality photo/scan of their ID with their long-term Bitcoin address attached in the email. Each time they send me Paypal I can only fund their BTC to the address that has been provided with the ID. This address must also be sent as a message in the Paypal money transfer.

It's worth a shot, I still have some tinkering today before I feel completely safe. But my understanding is this:

If someone is purchasing an intangible good, neither the buyer nor the seller receive protection from PayPal.

Therefore, the only way a buyer can attempt to receive their funds back is through filing a dispute, claiming they had an 'unauthorized transaction' that 'didn't benefit them'. But, if it was a very kosher, and systematic (normal) payment, looking to be funded to the same bank account, I doubt you could claim they hadn't benefited from it.

Another idea I have is to have them securely send me a photo of their photo-ID, and then to send a number from their ID as proof of identification. For example, I would say: send me your payment with your Bitcoin address and the 8th digit of your Drivers License number.

If they ever brought up a dispute against me, and PayPal went to investigate it, I'm certain I could win that case if those security measures were taken (of course I'm going to want to have someone from PayPal verify that this a working system or give suggestions on how to create a better system)

Also, I'm thinking about having an account that has not been verified in a bank and keeping a low Pay-Pal balance, taking my funds out to purchase items on Ebay whenever possible.

I see two reasons for this, if, the worst case scenario occurs and someone I trusted turns out to be a scammer looking to have 100% of their funds returned (remember this is worst case) I will a) possibly only lose a small amount of capital if PayPal doesn't put my balance to negative, or b) if they do give me a negative balance, of a substantial amount, there may be a hope in hell that I can walk away from the account. (I know someone is going to flame me because technically that's against some regulation but I am just thinking out loud here).

Thoughts, anybody?