..
most noteably the PayPal fees
..
new entrants with no better alternative might not get the best $/BTC equivalent price initially
funding your account in SLL from an in-world terminal is also a pain, as long as you don't have "Payment Info On File" (linked your bank-account to your avatar) and banking-info on VirWox.
if you don't have both accounts linked to your bank-account and you're lucky enough to get through the LindenLabs RiskAPI, you're limited to fund max.100 000 SLL (about $385) per week,
if you tell both, LindenLabs and VirWox, about your banking details, you're still limited to fund max.500 000 SLL per week.
and it's not only, or most noteably the PayPal-fees,
first you pay the PayPal-fee to fund your account,
then you pay trade fees of 0.8 - 3.9% twice ($->SLL and SLL->BTC)
and then you pay another fee to withdraw your account-balance.
that's not really an alternative to MtGox (or any other exchange).
This is somewhat true.
However it is free to fund your Second Life account with a credit card or PayPal. If you withdraw money from Second Life, there is only $1 PayPal fee. This is if you go through Second Life itself, and not VirWoX, with your real currency. Also, you don't have to link your accounts to your bank account. You only need to link your Second Life account to your VirWoX account.
I did run into a problem with Second Life's Risk API, but VirWoX manually raised my deposit limit after I complained. Second Life also removed my risk API flag altogether after I complained to them as well. None of this poses a big problem in my opinion.
The main problem with VirWoX is that the owner stopped making a market for BTC. Now the spreads are pretty wide and overall prices are higher than on Mt. Gox, indicating a lack of supply perhaps. I sold some coins for over $11 this weekend on VirWoX. But now must bid to get them back at over $9. So this market needs more liquidity to come in line with Mt. Gox. That's the main problem with VirWoX now. Overall, it's a nice alternative to Mt. Gox.
Edit: I agree, VirWoX trading fees are too high. 1% for market order, 3.9% for limit order with no discounts. That should change.