So should we conclude that Paypal et al are exercising censorship of somthing of which we approve, and Rush Limbaugh's former sponsors are not exercising censorship of something of which we disapprove?
Hardly.
I am expressing neither (necessarily) approval or disapproval of any of the examples mentioned, although for the record I would not -- if I were involved in risk management at Smashwords (not Paypal! that's the whole point of the discussion here!) -- be favorably inclined to recommend acceptance of material that could plausibly be considered illegal within the U.S. (and most other Western countries, though the exact criteria differ from place to place), that is, material clearly advocating (note another very important distinction here, namely, "advocating" is different from "depicting" -- hence the difference between true child pornography and, say, Nabokov's
Lolita) pedophilia, bestiality and some of the other universally-illegal topics that (presumably) got the whole ball rolling here. There would be clear legal liability involved in stocking, never mind advertising or promoting, this kind of material, and no responsible business would knowingly involve itself in its manufacture or distribution.
The point here is that the decision is Smashwords' -- and Smashwords' alone -- to make; it is not appropriate for Smashwords' editorial decisions to be usurped by entities such as their Web hosting company, their payment processor, the municipal government where their headquarters resides, or their ISP.
Now I will admit that there could be marginal or problematic cases where the principles aren't so clear (example : I run a "discount pharma" on-line store whose "products" are advertised purely by spam, and my Web hosting provider informs me that my behavior violates their Terms of Service), but in this case, I can but repeat : "payment processors are unsuited to be content censors". I stand on that assertion.