Others have used PayPal via the insert html code fragment feature, so yes.
However, before you commit to building your site with Publisher you might
consider the limitations of Publisher and your ultimate goals and
expectations for your site.
Publisher is a DTP with limited web building capability. It is intended for
relatively simple, small, static sites. Given you are planning a merchant
site, you might be happier if you used software specifically for web design
such a FrontPage or the new Web Expression.
Reference: Using Publisher for web sites :
http://msmvps.com/blogs/dbartosik/articles/80566.aspx
You might also read through this:
http://www.webdesignfromscratch.com/
DavidF