Essentially, we only hand-off the amount of a transaction total and some other buyer-provided info to PayPal and say, "Here, process a transaction for this amount going to our merchant's PayPal email of xxxx@xxxx.com". The buyer only logs into their own PayPal account to complete the transaction; there is no need to know the Merchant's PayPal password -- pretty much the same process as if someone used PayPal to send that Merchant some funds directly. Once PayPal confirms to us that the buyer's payment was good, we then send the buyer a post-checkout thank-you email which would also contain a unique link to download any digital products.
However, be aware that eBay has severely restricted auctions of digital-download products in recent weeks (see eBay for details), so you may wish to consider other methods for marketing your virtual goods.
