Yeah that has me concerned also. If you are defrauded via a stolen bitcoin wallet, you have a lot less legal support to fall back on than if your CC details were stolen. I mean, you're pretty screwed either way, but the additional level of risk of having no real established legal structure surrounding bitcoin transactions, combined with the speculative nature of its value (It's like the risk of dealing on forex^2, once for the conversion to USD, then again for the conversion to bitcoin) leaves me feeling a bit iffy. I vote +1 to google checkout, needs some more investigation.
Bottom line is I trust my judgement more than paypal - their buyer/seller protections have huge loopholes for scammers, and then there's the risk that they will just outright screw up your transaction like what is happening here. I know of this happening to other people I trust and know personally, who have been trading successfully for years, and suddenly paypal decides they're going to lock up their funds and business for some arbitrary reason.