Sefeiren did a lovely journal about their contact with a Paypal manager about some of this very matter. I'll still do my research too, but here is some more immediate information from yet another first hand account.
Link

I definitely saw this coming, ha ha. I am getting all sorts of tidbits of information and mixed responses about Paypal allowing adult material, and if so, what kind. So, what I'm going to do is contact as many people as I can, and give you all the information I can find on the matter.

First, I'd like to talk to as many artists as possible whose accounts were banned for selling adult artwork via Paypal. If you are or know artists who are willing to talk to me about the details of why and how they were banned, please let me know so I can reach out to them. I'm wondering if Paypal is against certain kinds of adult material (like cub art, feral art, or other things that toe the line of legality when put in an IRL context), or if accounts who were reported for adult content also had other things they were doing that unknowingly violated the user agreement (fee dodging, etc).

Second, I'm going to email Paypal several times from different emails asking them to clarify about "obscene and sexual materials", so we can have a bigger sample size of what this means, specifically. I urge as many of you as possible to do the same, so we can share the info. From what I understand currently, it seems to only prohibit physical sex (prostitution, porn videos), but again, I want to verify this.

Third, I recently learned from two separate users that Paypal apparently has a sort of morality committee, similar to how movies get sorta arbitrarily rated. I'm emailing this department as well, and linking them to specific, pornographic examples of artwork, so I can get clear answers on what is okay.

And lastly, even if it turns out selling drawings of porn is totes okay 100%, you should still always be careful and never label your payments as such. The porn industry is a very gray area, and our culture is not a sex positive one. There is always the possibility that all of this could change in a hot minute, and you'll wind up in a heap of trouble with a frozen paypal account. In my previous journal I made a section called "Treading Lightly with Paypal" for a reason. Give it a look over if you haven't already, because this is important advice for buyers and sellers alike, okay?

I look forward to finding out more about this. It's a matter that's bugged me for a long time, and I really just want to know the facts on how worried we all actually need to be about this.