Paypal is likely to be perceived as an indicator that you have a very small business or aren't serious about your business, or else you'd have a real credit card merchant account.
You should be aware that Paypal can behave arbitrarily with respect to freezing your funds, closing your account, refunding customers, and generally acting like they can do whatever they believe is correct without any sort of accountability or explanation.
If you have some sort of problem with Paypal or a customer, your only initial choice will be to interact with junior customer service people via web forms. If your dispute/problem gets escalated, you might get to talk to a very junior customer service person on the telephone. It's very unlikely you'll ever speak with anyone who has both a clue and any sort of authority to get things done. Speaking with someone who has even one of those two things is pretty much a miracle.
There are a lot of horror stories where merchants have lost access to thousands of dollars because Paypal decided they didn't like something about the business or business model and just froze the money. If your ability to buy or produce new products is directly linked to getting paid immediately for sales, an interruption like that could potentially kill your business.
On the other hand, I've been using Paypal for > 10 years now without a lot of drama, so it's perfectly possible to use them without running into problems. At this point, I use them mostly as a backup to my real merchant account, which once in awhile won't work, and it's nice to be able to pull up Paypal; or to accept payment from someone over the internet. (The vast, vast majority of my business is in-person, and my clients think Paypal is related to Ebay, which isn't a very professional image.)
The next step for people who avoid or outgrow Paypal is often 2Checkout.
