It’s unclear what this shift actually is, until PayPal actually speaks.
March 12, 2012 – PayPal update: I met with PayPal this afternoon at their office in San Jose. They will soon announce revised content policies that I expect will please the Smashwords community. Effective immediately, we are returning our Terms of Service to back to its pre-February 24 state. Beyond that, our friends at PayPal have asked me hold off sharing additional details until they’ve had a chance to finalize their new policies. Thank you for your patience and support during this crazy last few weeks.