I offer both. I've had a Paypal account for over 10 years (I used to sell on ebay on a regular basis) and have never had an issue with sending or receiving payments. I've had direct checkout with this shop since I re-opened in October and have not had any issues. As far as the fees are concerned, I find them to be comparable. Until recently, Paypal seemed to be the most popular payment method of my buyers. However, 7 of the last 8 orders in my shop have been paid for with direct checkout. It doesn't matter to me how they pay, as long as they pay!
I think it's benefited my shop to have both. Some buyers don't want to deal with Paypal. Some, like me, prefer not to key in credit card information and use Paypal for that reason.
If you build the fees into your prices there shouldn't be a problem. I notice you and I sell similar items. My item and shipping prices are set to cover all Etsy and Paypal/Direct Checkout fees.