An internal email to PayPal employees asked them to test the update, adding that it would launch on November 15, according to Kotaku.
PayPal was added as an additional way of paying for Xbox Live Gold subscriptions and Microsoft Points earlier this year.
The dashboard update will offer a significant overhaul to the console's user interface, adopting the Metro panel interface seen on Windows Phone and Windows 8 operating systems.
Channels can be navigated using either a controller, Kinect or voice control, and users will have direct access to new applications such as Bing search and YouTube.
At Gamescom 2011, Microsoft revealed that the new dashboard update will also add Xbox Live cloud storage, which will be compatible with all games.
The new Xbox 360 dashboard will enter open beta next month.