The most disappointing element of this whole process was to see PayPal manipulating the entities that are meant to provide regulatory control.

In this instance the CSSF is rigorous, but ultimately rigid. They have clearly defined boundaries and protocols. The problem is that companies such as PayPal exploit this to their benefit - which means that they ultimately use the watchdog entities as peons to execute their illegal practices.

I think the issue is: Which tool offers the same benefits? As buyer and seller? I always had bad experience with paypal's resolution center. But what are the alternative if you don't want to spread your credit card everywhere, send and receive money, with an acceptable user experience?

There are services where you can get temp. cc numbers what 'wrap' your 'real' card. You can limit them to certain merchants and limit amounts, cancel them etc..