Just my two cents, having talked briefly with Boss-Hog about this in the past... the Paypal link is a very good idea. The college sports site I used to work with had to do this because the site expenses were on the order of $4,000 per year. Amazingly enough, the initial donations kept things covered to the point where the site owner was able to pre-pay several months in advance.
The drawback is, of course, that every six months or so he had to post a "cash call" to remind people that the next round of bills was coming up. Like Boss-Hog and GIK, that's something that grated on him. I like the idea of keeping a running total of donated/needed up there, that's something we didn't do.
I also approve of the idea of giving props to the people who donate, perhaps as either a separate page or by designating various levels that would appear next to the username.