I'm having the exact same problem. My paypal account has been verified for *years*, and I've used it with SL several times. For some reason I get this after I finish setting up payments on the paypal side:
An error occurred while processing your request.
You must have a verified PayPal account to continuePaypal itself seems to be fine with me setting up a payment agreement, it seems like something's getting borked with the passthrough back to LL. Please address this soon LL - I want to give you my money. u.u