Not true. I got my Paypal account shut down for selling panties and erotic photos. And you definitely can't sell vibrators. Be careful with it!
Ummm. If this is true then this sucks. I've bought my share of lingerie and sex guide books and media plenty of times through ebay and amazon using PayPal and I've seen both sell toys too. I've bought gifts from wishlists before and some of those I have bought gifts for have been nice enough to send me a private video or picture of them using or wearing the gift. You probably can't sell used items that are unrapped without tags.
But what if the product being sold was a coupon/giftcard/or post card? Just something inexpensive but would allow an individual to profit but meets the terms and conditions. But it needs to be transparent enough for the consumer to know exactly how much money an individual would make and that that profit or credit is being applied to the desired job to be performed. Similar to how you can buy a gift card for someone that contains credits that can be used to buy things online (ie. itunes, xbox live points).
Browsing major fundraising sites that show up in searches and so far under terms and conditions they prohibit :fundraising for certain sexually oriented materials or services", But there has to be a less complicated method of transparent fundraising. I'll keep browsing if anything comes up.