Merchant view
Several people have pointed out that fraud is a cost that merchants have to bear, and thus it is expected and Paypal cannot be expected to bear the cost.
I kind of agree, when it comes to what I think of as a 'merchant' - a business or person that sells on eBay/Paypal to make a profit, and is therefore subject to tax on the goods they sell.
However, I don't think of myself as a 'merchant', just somebody who wants to sell the occasional bit of tat. It's semantics, I suppose - but if as soon as I sell an item on eBay I become a merchant, and should expect a certain level of loss, I feel it's only fair that eBay/Paypal should warn me of this, rather than bragging about a safe and secure way of selling goods.
To be honest, eBay seems to be increasingly focusing on bulk merchants rather than individuals - it's actually quite hard to find an item on there which is just being sold as nobody wants it any more, rather than being sold by somebody making a living. It's no longer a bring-and-buy sale, and it's becoming more like the duff end of a flea market every day. In other words, poorer quality goods, nothing unique any more, inflated prices, and no real bargains.