Paypal is reasonably safe, but they are set up as a completely automated system and if something does happen to go wrong it is just about impossible to get it fixed. I use it all the time for reasonably small transactions (under $100) but I wouldn’t trust it for anything big.
My only negative experience was that I purchased something on e-bay from someone who said they accepted paypal, but then found out from them that they only accepted regular paypal payments and not credit card paypal payments (apparently paypal charges more for these). I was unable to cancel the transaction, unable to find a reason why I couldn’t cancel the transaction from the help on paypal’s web site, and never got anything more than an automated response from paypal when I e-mailed them (which didn’t answer the question either). I asked the seller if he could decline the payment, which he did, and it all worked out in the end. The experience gave me a very good understanding of how paypal is set up so that you can’t get in touch with a live human to fix something if there is a problem.
Now I don’t use paypal unless the seller displays the paypal logo on the item description, and I haven’t had a problem since.