I think as long as the person you are paying has a valid e-mail address, they can still be paid - maybe they can divert the money to a bank account. I remember reading it in ebay's / papal's info somewhere.
If the person who you are sending money to does not have a Paypal account, you simply send it to their "checkable" email address. They will receive an email letting them know that you have sent them cash using Paypal and that they can claim it by opening a Paypal account. Once they open the account, the funds are listed as Unclaimed to them until they verify that they are the owner of the email address. Once that is verified, the money is deposited into their Paypal account. If they wish to widthdraw it, they can setup a checking account or request a check.
For people who have Paypal accounts, you simply send it to their Paypal email address. If you do not know that address, send it to an address that they can check. When the receive the notification saying that they have money, they can then login to their Paypal account and add the email address that you sent the money to their Paypal account. Their account will then show that they have unclaimed funds until they verify that they own the email address. Once verified, the money will deposit into their account.