Do I have a Paypal or HSBC problem, and how should I solve it?

HSBC does not directly communicate with your paypal account, if the funds are not there and your bank refuses them paypal is simply alerted of this and declines your purchase. The fault is really not on either party, if you try to make a purchase without having the funds you will be declined anywhere you go. I have never heard of banks holding your money for a transaction, perhaps you have some type of hold on your account now. I would really talk to your bank to better understand what is happening.