I think Deborah makes a lot of good points here. If the horror stories made up anything close to a significant percentage of Paypal transactions, they would not remain as popular as they are.
I will add that I would only use Paypal with an actual credit card. Debit cards may seem like the same thing, but most of them do not have the same protections built in that a credit card has.
Also, I'd be at least slightly more hesitant to use Paypal as a seller than as a buyer. Buyers can research sellers much more easily than vice versa, and have some idea if the person they are dealing with is a "good guy" or not. And as long as the transaction goes the way it should, and/or any issues are resolved between the buyer and seller, then there is no need to worry about Paypal. But if a seller runs into problems with a buyer, and Paypal decides in favor of the buyer, then the seller has nothing like the credit card company to fall back on. So it does seem much more risky for the seller. Note: I've never used Paypal as a seller, so I'm just saying what seems to be true based on what I know about how it works.