Essentially they're trying to pass the risk of exchange rate fluctuations (and the currency conversion fees) on to you.

Your TOS says USD, they pay USD. End of story.

Edit: And to those saying PayPal has no fees on currency conversion, their rates include a commission of a couple of percent. As an example, at the time of writing 1AUD gets 0.93344USD at raw MasterCard rate or 0.911923USD through PayPal.