I don't know why PayPal has done what they've done about who they'll do business with. But IMO we're way too quick to jump to conclusions about their motives. And heaven forbid that anything would make it less convenient to pay for porn.
It's well known that some customers turn out to be more trouble than they're worth. For instance, I'm guessing we'll be reading a lot about insurance companies refusing to write more homeowners' policies in FL after all of the hurricanes. Is it because of all the Hispanics down there? Or maybe the Haitians, or blacks, or AIDS cases? Or maybe it's discrimination against old people?
No, it's because they can only afford to have so much risk exposure in one place. If they go broke settling FL claims they can't possibly meet their responsibilities to the rest of their policyholders. So although there are ways to abuse the situation, in fact there is nothing inherently questionable about their conduct and in fact there are reasons to recommend it.
Likewise, when I worked in telecom I found that some companies simply refused to serve certain area codes. They were too expensive to serve because of incredibly high levels of fraud and abuse.
In other cases margins are very narrow, so companies take steps to build in a minimum amount of revenue. For instance, telecom companies like to have a minimum charge for service, and Sam's and Costco want a membership fee before they'll let you buy anything.
Maybe the customers require too much service relative to their revenue. For instance, telecom companies also have been known to avoid business that Jerry Falwell might not approve of simply because of the number of disputes. "Honest Mom - I didn't call Dial-a-Slut!". For good or ill, these take a lot of attention and generate a lot of ill will, so who needs it?
Or maybe it's too dangerous. Try getting a taxi or a delivery pizza in the wrong part of town.
Or maybe we can thank lawyers. Has PayPal been sued for facilitating certain types of illegal business?
In short, there might well be any number of perfectly good reasons for choosing not to do certain business. Surely no one is claiming that PayPal has a duty to serve anyone who wants to use them.
So PayPal might have developed a perfectly defensible policy.
Of course it takes time and training to implement a policy. There will be screwups from time to time, and I suspect that that could be the case here. If this is a recent policy change, the staff has both a learning curve and a huge backlog to deal with. Resolving problems is a PITA for sure, but is not ipso facto evidence of ill will or incompetence.
Incidentally, I have used PayPal only for donations, IANAL and I don't stand to make a nickel on this any way it turns out. And I'll note that PayPal takes a smaller cut of donations than Amazon does.
But I have had enough of people who want to scream "Censorship!" at the first sign that others have standards that differ from their own. Unless there is some more evidence I haven't heard yet (and I'm agnostic on this), the scolds who are all over PayPal for their policy statement and possibly unintentionally flawed implementation are no more tolerant than their bogeymen on the Religious Right.