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Yep, you can use a prepaid card with Paypal like you want. You just connect it to your Paypal account as you would a checking account. I've provided a link with detailed instructions below on how you do that. I've got a good prepaid card that let's you do pretty much everything you can do with a checking account. It's a Readydebit Visa card. The fees are pretty much the lowest around. No purchase transaction fees, no overdrafts fees, no dormancy fees, low monthly fee, etc...
One other thing, the Accountnow card mentioned in another answer does cost money to get it (as all prepaid cards do). They had some bad info in the answer for you.
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