In my experience, the average supervisor is not familiar with the intricacies their company's rules and is not competent to interpret them.
I'd go by the written rules rather than an off the cuff opinion from some minion.
This is my take. It seems like there isn't a rule against legal knives and it seems like it would be hard for paypal to defend against accepting payment from a knife dealer on a regular basis, knowing it breaks there rules. I'm not sure it applies here but in a human resources book I just went through, consistent and accurate adherence to the rules by the firm is required for the rule to be used as support in a legal case. If it's being applied inconsistently, then the rule doesn't necessarily support the firm.
For instance, if there is a catwalk without a railing and maintenance personnel use it with a harness and there is a rule that states as such, but the use and enforcement of the harness is spotty then the work is still liable for creating an unsafe work environment. My point being, if paypal supports the sale of knives in some cases but then some supervisors say they don't support the sale of knives and they try to stiff someone at some point saying it's against their rules, I think they would have a very hard time getting that rule to hold up in court since it has been inconsistently applied for quite a while, assuming they don't actually cover legal knives.
At least that's how I am processing this right now. I just find it hard that they will take your money for the service, seemingly aware that legal knives are being tendered, but then refuse the service paid for in inconsistent manners.
As an anecdote, I'm pretty sure I've heard far more stories about paypal helping a seller or buyer show got stiffed by a canceled credit card transaction or shipping an empty box than paypal covering nothing at all because it was a knife. Maybe the fact that it was a knife never came up in the disputes since they really only need to care about the accounting end and whether the transfer of goods happened or not, not necessarily what the goods were.