This has been tested today, 7th June 2008, and have into account that with the time Paypal and banks do change their rules.
1- Last week on Sunday I opened a Paypal account using an anonymous proxy from the US (I live in Europe).
2- I bought something from a shop that only accepts Paypal as a payment method.
3- Link redirects me to my Paypal account which will check my IP geolocation (the US proxy I was using) and then I use a virtual credit card fill in some fake details, I Google for a US real address and location and I find that certain famous hotel in Orlando lists their postcode and phone number on the page, I fill that in together with a Joe Doe as a name.
4- Paypal blocks the payment until I have verified my credit card, they charge me €1.50 on the virtual credit card and add a four digit code on the statement for verification purposes.
5- I check my virtual credit card statement online the same day, it will take four days to see the code.
6-Today I see the four digit code 8373, I verify my virtual credit card with Paypal making sure I am using the US proxy accessing the account, and I succesfully make the payment. Now the shop from which I am buying will see Joe Doe as the persorn making the payment, and if Paypal gets hacked they have a virtual credit card with only $5 left.
FOR PAYPAL NEVER USE A VIRTUAL CREDIT CARD THAT WILL NOT ALLOW YOU TO CHECK THE STATEMENT OF THE CHARGES ONLINE.
ALWAYS MAKE SURE THE ADDRESS YOU ENTER IN YOUR PAYPAL ACCOUNT IS VALID. SPECIALLY THE POSTCODE, THEY WILL CHECK IT.
ALWAYS MAKE SURE THE COUNTRY OF ORIGIN IN YOUR FAKE PAYPAL ACCOUNT CORRESPONDS TO THE PROXY COUNTRY OF ORIGIN YOU ARE USING.