She has apparently emailed Paypal to try to gain pre-approval for gambling status. If she posts a screen shot of an approval email from Paypal, I will update this.
UPDATE 1/23/13 9:10am:
Sock Monkey City posted that she has refunded the current participants and will not be proceeding any further until she hears back again from Paypal because they are reviewing her account.
UPDATE 1/23/13 5:45pm:
Sock Monkey City completely removed the note at some point today concerning the raffle.