That is a misuse for the donation button, the blog post maker obviously tried to make PayPal look bad, I don't think in any way that Paypal lets you donate for cats than for children.
Either way, that was not donation for a charity.
A charity requires official registration, and documents related to it.
You can't simply say "I'M A CHARITY" and let the money flow onto you tax-free. The charity owners do pay a small portion for the license, don't sure the percentage of the estimated amount.
Paypal is a "proxy seller" that takes money and gives money, not a bank.
A proxy seller, in the means of the above: You give Paypal money, Paypal uses the money to buy you goods/software/whatever online, and gives you the good/software/whatever.
The 'charity' man was a proxy seller through Paypal. He didn't have a charity act, he just took people money and used to buy stuff for children.
Paypal is strict to protect themselves.
The previous phrase also comes in contact with Notch's situation. Minecraft was not successfully bought by all customers. The person sends $15 to Notch and there's a chance Minecraft.net does not set their account to premium. If the person tries to contact Mojang for support, and they don't reply, the person contacts PayPal for a refund. In the process, PayPal "taxes" Mojang for the charing back.
After that if Notch wants to withdraw all (Or most of) the money from the account, Paypal goes all "We've had people charging back! If you take that money and someone else charges back, we (/you) cannot pay back, which is a fraud."
tl;dr: Mojang is at fault, it needs better customer support.
The account got frozen because of the high charge back rates. Paypal just assume, that the service is a fraud, to avoid future complications, they do what's best..
And reasons can be given for other cases too.
Paypal did not do anything wrong, if you take it legally.