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I use PayPal on my website, since I have not yet gotten into accepting credit cards myself. I don't think that the fees are really all that bad. I think that adding PayPal fees AND Etsy fees might be pushing it. I think you would definitely need to up your price a little to make up for it. On an item I recently sold through my site, I charged $20.00 plus $3.00 for shipping, so $23.00 total sale, and PayPal took $0.97. I don't find that to be awful. Usually if you except credit cards yourself, they charge you a per-transaction fee.
Glaswizz
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