Can I insert a PayPal button into an email?

The short answer is we don't recommend it.

The code that Paypal provides for you is a form, which won't work in most email clients. At one time, forms were usable in email, but since they could be (and were) used to exploit security holes in email clients, most companies decided to ban forms altogether. (They do this by removing key pieces of the form's code, which will make the form not appear at all, or in the worst case, will make it so the code itself shows up in the email.) So, what's a good mailer to do? We recommend creating a link to a webpage that hosts the form and Paypal information. By creating a link to a webpage, you will now make it accessible to your list members, and make sure it renders well for everyone.