Alright....got some good news for you guys. I spoke with Nick over at Paypal to help clarify some of the policies regarding the use of Paypal for tobacco purchases.
Paypal does not allow its services to be used for tobacco purchases made on Ebay (however this isn't really a problem as tobacco can't be purchased on ebay anyways).
Paypal can be used by vendors that directly imbed paypal into their business site. So *hint hint*, if we add Paypal to our shopping cart as a means of payment, than it is acceptable to use it.
Hope this helps you guys as much as it helps us!!