The email that I got from PayPal implies that this is an India specific restriction, so I dont think it applies to most plugin developers. Quoting the relevant passage from the email
Code:
We noticed that you have replaced the PayPal donation button to "Donate to
Calibre" at your website. However, due to legal and regulatory constraints
in India, PayPal Pte. Ltd. is unable to process donation payments since it
uses PayPal solely for online donations without involving the purchase of
any goods or services.
We understand that all the donations are contributed to the development of
the wonderful software "Calibre" , but unfortunately you are not permitted
to use the Donation button to collect online donations.
Thus, in order to complete our review and restore your account, please
remove all the wording of donation/donate at your website and you may
replace donate button with other PayPal button (e.g. subscriptions button)
on your website.