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Because the gifts given will ultimately be going to someone other than the billing address. This is really the issue in the TOS OP is coming up against, from what I can tell.

Also, the actual items being sold were "mystery" gifts, not actual items.

My guess is that paypal views this as high risk because someone is sending money to OP, and OP is sending "something" to someone else. It's not trackable through PayPal's system, which means there is a high potential for chargebacks, which cost PayPal (and everyone else involved) money.

This seems like an extremely reasonable freeze to me, especially given that the PayPal rep told OP exactly what OP could do to sell these items: ship to the actual buyer and tell them what they are getting, and do so under a different name than your original attempt. That's kind of the only way it can work.

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