I clear about $2000/month through Paypal. My experience has been mixed.

Their name recognition and well-established subscription API is a good choice for my subscription-based web apps.

However they limit the amount of money you can withdraw per month unless you "verify" (or something) your account by giving them details like your SSN or additional bank details. Might be a turnoff for you if you're doing this strictly small-time.

As far as their anti-fraud measures, I've been stung by them repeatedly. I don't have a home base; I travel while working. This means I'm constantly accessing Paypal from different IP's in different countries, some of them scary-sounding to a bank-like entity (Thailand, Vietnam). Their system automatically freezes your account if they detect too much access from foreign IP's.

When your account is frozen, you can continue to receive money but you can't wire it from PP to your bank. So basically if you're unable to convince them that you're legit, Paypal has stolen your money and you'll never see it again.

For this reason, I never keep a balance of more than about $300 in my PP account. I always withdraw immediately as soon as it goes over that balance to hedge my bets against Paypal freezing my account permanently.

To be fair to PP, every time I've called them I get a very friendly person on the phone who is obviously US-based (a nice touch these days). They've always restored my account after asking me some basic personal info questions. However there's no way to put a permanent note on it saying "this guy travels a lot, stop freezing it you idiots." In fact I've (no joke) had it re-frozen right as I was in the middle of talking with a service rep who had un-frozen my account 30 seconds earlier.

Additionally, the PP website will demand all sorts of scary-sounding information from you to automatically un-freeze your account (utility bills from your listed address, scans of checks from your listed bank account, etc.). Problem for me is that since I have no home base, my listed address is my parent's house; if I send a utility bill without my name or my company's name listed, will they believe me? And you can't change your personal details once your account is frozen, so there's no way to go back and change the address to something you can fudge into a working solution.

But fortunately in the past I've just called them in person and they've sorted it out with minimum hassle. Though that's mighty inconvenient for me when I have to find a Skype-capable internet cafe in a Vietnamese rice-farming village at 3am. (I've since bought my own mic just for this reason).

And finally, after calling to complain so often, they offered to mail me a security card to stop this from happening. It's a little debit-card shaped thing that generates a number when you press a button. You enter that number when logging in so they know it's you. I haven't had my account frozen since, but the threat looms constantly and I'm seriously considering switching to a real merchant account/cc gateway setup instead of using Paypal.

EDIT:
Re. chargebacks/returns: I sell subscriptions to my apps so no physical goods are exchanged. Over the course of my ~3 years in business maybe 3 or 4 people have requested a chargeback via Paypal (had they asked me directly I would have been happy to oblige but they went straight to a Paypal dispute). In every case, Paypal has sided with me, with almost no action on my part required. That is I get an email saying a disupte has been filed and PP will contact me if they need more info from me. A few hours later I get another email saying the disupte has been resolved in my favor. This has happened every time.

From what I hear, this is not the usual for Paypal. Maybe the low number of chargebacks and high transaction volume gives points in my favor. But everyone else says virtual goods via Paypal are just asking to be hit with chargebacks, so caveat emptor.