Paypal do not like hotmail type addresses, but if your home address is verified, i.e. when you go into ebay they then put a charge of $1 through to your credit card. When your credit card statement comes through the charge has a reference number by it. Type that number on to ebay and they then have verifed your address.
If you do not do this, every time you use it, the seller gets a message saying address unverified and may want to wait until the transaction is cleared before sending the goods.
I think that you get the $1 back, when you first use the account.
This sounds complicated, but it is not and is only to protect the user.