It's a phishing scam (and a very good one). There's an article here.
http://www.antiphishing.org/phishing...05_Paypal.html
My first guess would be that something has altered your hosts file. Post a Hijackthis log.
Hijackthis Logs
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Son of Glyndwr
Mae hen wlad fy nhadau yn annwyl i mi
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