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Darkcloud: Did you use the same email for signing up that you use for paypal? If you didn't the only mystical thing is how you could miss the big "if you want to use paypal make sure to use the same email for signup" below the email field that you get at least twice while signing up.
Funny thing about that. I do use a different e-mail address for Paypal than I use for GMG and still don't have an issue with paying via Paypal.