How do they not have the same problems with chargeback fraud that Bitcoin sellers have?
The difference is that for some reason PayPal gives purchases of Linden Labs different treatment than purchases of Bitcoins. Maybe it is because when VirWoX first started trading, purchases for Lindens (SLLs) occurred to be able to use them in-game. Now there is a certain amount of SLLs that are purchased, and immediately turned around sold for bitcoins.
VirWoX probably gets fair treatment by PayPal as well. If the customer claims to not have received the SLLs, VirWoX can prove that the SLLs were truly delivered to the account and their disposition from there. So the only fraud that remains is the cardholder claiming the card was stolen / pruchase was not authorized which is probably more manageable.
Alos, VirWoX probably has enough volume by legitimate purchases for Second Life users that the fraudulent charges for Bitcoin pruchases is not enough to derail their ability to accept PayPal (e.g, chargeback ratio stays below certain levels.)