Merchant Accounts can seem like a barrier for some home-based entrepreneurs who want to open a website and do business on the web. Merchant accounts allow you to directly accept major credit cards (Visa/MasterCard, American Express, Discover). I’ve seen many sites where the only form of payment offered is PayPal.
Though PayPal can accept credit cards, I think this might limit your customer’s choice to what they perceive as just one form of payment. And to pay via PayPal, the customer must be redirected to the PayPal Site, fill in the payment information, and then return to your site to complete the order. If they are not already set up as a PayPal user, this process is fraught with problems and seems to result in a lot of incomplete orders (on my websites).
I think that while PayPal is well integrated on eBay, having it be the only form of payment on an e-commerce website may deter a potential purchase. I think it serves better as a compliment to the Merchant Account rather than a substitute for it. When it comes to asking people to open their wallet, the more payment choices you can give them, the better!