My first reaction was to say that I disagree with this approach. I think it would be confusing to the customer, and I don't think the explanatory message will be much help (as most customers will either not read it, or they will read it but not take in the message).
But having thought it through, I don't much like the alternative approach either. If you had a single shopping basket, and a single checkout page, you would have accounting issues to deal with, and you would have to devise a common set of terms & conditions that all the vendors could agree to. Those problems are not insurmountable. A worse drawback is that you would lose your biggest selling point: the personal nature of the transaction.If I see a sweater for sale that was hand-knitted by a crofter on a Scottish island, I would get a real thrill out of buying it direct from the crofter. If I thought the purchase was going via some intermediary, I would probably still buy it, but the transaction would definitely lose some of its appeal.
Maybe the best option would be for each vendor to have not only their own PayPal button, but also their own shopping basket and their own checkout page. Each of these would have the vendor's individual branding. If, exceptionally, a customer adds products from different vendors to their basket, it would be at that point that a message pops up explaining that this is a different vendor, and must be checked out separately. Make that a modal message box, which the visitor is forced to dismiss. Consider also displaying a message after the first vendor's basket is checked out, to remind the customer that they still have products in the other vendor's basket.
I should add that I don't have any direct experience of this kind of setup, so I might be well of target with these comments. However, whatever option you go for, I'm sure it will be much more beneficial to the vendors than not having any on-line selling ability at all.