Comment by level3

I always assumed it was for the same reason sites make you enter your email address twice without pasting - to reduce the chance of mistyping. If you only have to enter something once, then you could easily mistype it and then you end up with an account you can't log in to or even recover. But if you have to type it twice, then the chance is greatly reduced, since you'd have to make the exact same typo twice in a row.

Edit: This is regarding account creation/changes like the PayPal example. I have no idea why login forms would disallow pasting.