RJ,
I was wondering how you were going to deal with this. I was contacted by Paypal earlier this year regarding it as well. When it all comes down to the bottom line, Paypal is only doing what the government has told them. This has to do with new tax laws that were passed during the Bush administration and are taking effect in 2011. It really impacts how our hobby is going to continues.
I am in the exact same boat as you are in and if I continue to do this as a hobby I really can not justify it at the end of the year. I have looked into other payment methods such as Google Checkout which made a brief appearance on my site, but didn't like how it integrated. I even looked into becoming a certified 501(c)(3) organization but than it becomes illegal to even make the 3% fees that are most usually charged. All and all, it doesn't look good for us to continue to go as we currently do.
I know a lot of people will bark about this, but becoming a legitimate company may only be the only method that avoids keeping a tremendous amount of documentation for the government. In most cases in becoming an LLC you only have to charge sales tax in the state you conduct business in. (In my case NJ, in your case FL) Looking into the business world can be daunting but I moved into it after college and even have a degree in it. Although I haven't used it in my "real" job (haven't we all) it may become very important in the future.