Pros = Easy of integration, PCI-compliance offloading, liability shifting, saner cashflow, no merchant account required
Cons = I have heard PayPal can (and do) lock accounts without warning, so regular 'emptying' is required. IMHO for high value items, it can look amateurish. However, PayPal can add integrity/security/peace-of-mind to smaller sites' customers.
I would also look into things like SagePay and their products, FastSpring or a new contender like BrainTree.
I have never heard good things from PayPal in terms of business users. They seem good at taking money off consumers but bad at giving it to businesses. I would look at the alternatives and try and find one with an SLA.
Depends very highly on the perceived quality, broadness or ambitions of your offerings. I would have no problem using PayPal for a niche e-commerce site selling something obscure, it is one of the few options they have. A larger (or trying to be) store with high quality web-design etch would raise an eyebrow about why they were using PayPal;
You can always change-as-you-grow if you build your setup in a modular way or use something like Magento that allows this. Good if you want to get cashflow going without the overheads of a highly integrated payment system.
If it were me, and I didn't have the option of a real MA then I wouldn't use PayPal, I have read far too many horror stories (but I am sure other payment service providers have them too). This answers.onstartups.com question seems to have a happy customer for Authorize.net