Is something like paypal for person to person fund transfers legal in South Korea? I ask, because I was surprised when my friends in Japan told me that that was illegal in japan!
As far as purchasing is concerned, PayPal is just another foreign merchant that accepts Visa and MasterCard. A withdrawal is just another international wire transfer. But since both transactions are international, if you combine them you get two currency exchanges and so you lose a lot of money. That, along with the fact that the whole process can easily take 2-3 weeks, is probably why nobody even bothers.
Besides, Korean banks already have a system that allows anyone to send money to anyone else, instantly, often for free. Nobody ever mails checks in Korea. This works perfectly well in our own walled garden. PayPal will probably never be able to compete with that, even when the other side is burdened with ActiveX crapware.