Prohibited Activities 3.relate to transactions that (a) show the personal information of third parties in violation of applicable law, (b) support pyramid or ponzi schemes, matrix programs, other "get rich quick" schemes or certain multi-level marketing programs, (c) are associated with purchases of annuities or lottery contracts, lay-away systems, off-shore banking or transactions to finance or refinance debts funded by a credit card, (d) are for the sale of certain items before the seller has control or possession of the item, (e) are by payment processors to collect payments on behalf of merchants, (f), are associated with the sale of traveler's checks or money orders, or (h) involve currency exchanges or check cashing businesses from PayPal Acceptable Use Policy this should answer your question.
Definitely no lottery, adult, warez. You might get away with starting it up, but your account will be suspended in no time.
here is the list of lottery websites those accept paypal . http://www.playlotteryonline.org/lottery-deposit-options/lottery-sites-accepting-paypal/ so saying that paypal not allowing is wrong .Its no matter to them ,they happy as far as money coming in. if a thing became leaked then they start acting like they dont know anything about it . for eg wikileaks and shit .they keep accepting donation for them and when media brought it up they said they breached our policy's .