The term is a bit confusing, do they mean sending cryptocurrency to any wallet/address (both non-custodial or custodial wallet)? Anyway, i hope they won't they anything ridiculous such as threatening to close their account if they deem user use the coin for things they don't like (deposit to casino, withdraw to coinjoin wallet, etc.).
By third-party wallets, PayPal must be referring to wallets other than PayPal, "to the destination of their choice," as their executive, Jose Fernandez da Ponte, said.
I am also hoping that there will be no discrimination of crypto funds on the basis of where it is coming from, unless there is enough reason to flag it. Currently, my local wallet implements a policy of not allowing deposits and withdrawals involving gambling sites. It's a huge hassle for someone who gambles like me. But then, I guess it's about legal requirements as opposed to wallet preference.
Once they allow withdrawals, they won't have any control over where and which the coins will go. But like you said they may also prevent coins coming from casino since Paypal are known to have not allowed gambling funds. This is like one of the fungibility issues that should have been illuminated when it comes to cryptocurrency but the government found a way still through the bitcoin mining council.
Well, once the withdrawal is given the green light and has been confirmed, the funds is already beyond the control of PayPal. It is irreversible. However, every transaction is monitored. The moment they suspect something is against whatever rule they have, they might do something not with the withdrawn funds, which is beyond their control, but your account and the balance it has in the wallet.
Anyway, I don't think the government has something to do with the newly announced Bitcoin Mining Council.