Because PayPal charges a fee (the normal $0.30 + 2.9%) that amount gets passed along and subtracted before the withdrawal payment is sent.

Bicoin Nordic does withdrawal to PayPal as well, with a 10% haircut on the exchange rate:
 - https://bitcoinnordic.com/sell

Works, but for larger amounts it gets expensive.

There are usually traders on #bitcoin-otc willing to do 1:1 or close to it.  You're the one extending trust but the trust ratings will help you know how to avoid risk:
 - http://webchat.freenode.net/?channels=#bitcoin-otc-foyer
 - http://bitcoin-otc.com/trust.php