I can add my Paypal account just fine, but I can only make one purchase with it. Any subsequent purchases result in an error of 'your payment instrument could not be authorized.'
My workaround until now was to remove the paypal account, and then add it again and make a new purchase, but after doing this about 5 times, my billing account was locked, and after talking to support, they removed the block and told me I needed to make sure that all of my billing information matches with xbox.com/account and Paypal. All of my billing information matches to the case of the letters, but once again, after adding Paypal and purchasing points once, I again cannot purchase anything afterwards.
I'm debating if I should remove and re-add to get more points in my account, because they're probably just going to lock my damn account again, thinking I'm some crazy person doing strange things by adding and removing my payment instrument every time I make a purchase.
I am using paypal with only money in the balance - I do not own any credit cards, and with the PSN fiasco, I have no interest in making a credit card for my own safety. Do you think this is some sort of messed up bug where the details paypal gives xbox is only good for one purchase or something, since it's not tied to a credit card?
The other weird thing is that I can only purchase up to $50... anything I try to buy with Paypal over $50 on xbox.com automatically fails. weird.
Anyone have any help they can offer, or am I stuck with calling up MS every other month to have them unlock my account because Paypal simply does not work nicely with xbox?