If you have a bunch of Bitcoin money but need to do business with people who will only accept fiat currencies, you need some kind of exchange service. I suspect that is what Paypal will do.
Or they start to act like Bitpay, providing payment (or donation) services. In addition they could exchange BTC against other currencies at the current market rate from a market exchange like Btc-e, mt.gox or bitcoin-central.
If you have a bunch of Bitcoin money but need to do business with people who will only accept fiat currencies, you need some kind of exchange service. I suspect that is what Paypal will do.