[matwood]

The first is having a separate bank account specifically for use with paypal.

IMHO, this is crucial. Years ago some friends started an online business selling trinkets and they asked me about paypal. The advice I gave them and still give is to open a completely separate account for your paypal deposits. As as soon as paypal pays you, move that money into your real business account. This will not prevent paypal holding your money hostage, but it will stop them from taking money back out of your account.

If you only need to use paypal to purchase things you can use the method above, but it's easier to just hook it up to a credit card.