I've been using both PayPal and eBay for years. It was YEARS ago when I tried to buy a PC on there and got screwed over. But, my credit card and bank supported me. I did not have PayPal back then.
Now, I use PayPal for everything and have had no issues at all. I have done numerous $500+ transactions and have sold thousands of dollars in gear on there.
The number one issue I think people have issues? Phishing. They get the email that asks them to confirm their account information, so they click the link and happily type their user name and password... and then are completely and totally screwed over.
I will continue to work with PayPal and recommend it to others, but the ideas in one of the early posts on how to fully protect yourself make a lot of sense. Yet, they can be used by scammers just as easily: Setup an account, sell some fake gear, move the funds out of the bank account, take the money and run.