This is part of the form letter that PayPal sends when you are caught selling BTC after the fact:
"We have reviewed your PayPal account and found that you are operating as an e-currency dealer/exchanger including the sale of electronic media of exchange (such as electronic money or digital currency). Per our current Acceptable Use Policy for Money Service Businesses, PayPal may not be used to operate a currency exchange, bureau de change or check cashing business including the sale of Bit coin."
So PayPal knows what BTC is, they just straight up ban digital currency sales.
OK, then it looks like whoever sells BTC on eBay and uses paypal is pretty much setting himself up for trouble. So the OP has nobody to blame but himself...
"We have reviewed your PayPal account and found that you are operating as an e-currency dealer/exchanger including the sale of electronic media of exchange (such as electronic money or digital currency). Per our current Acceptable Use Policy for Money Service Businesses, PayPal may not be used to operate a currency exchange, bureau de change or check cashing business including the sale of Bit coin."
So PayPal knows what BTC is, they just straight up ban digital currency sales.