My account was recently compromised and 8000 MS Points were billed to me via paypal.
As a precaution i removed my paypal and other credit cards and changed my password while opening a unauthorized access case.
The case has been closed and MS is in the process of trying to refund me the money for the 8000 Points.
it seems Paypal doesnt want to access the refund as it was removed as a payment option.
In an attempt to help i tried to add paypal via the website and my xbox.
On the website i get the following error when trying to add the account.