Deposits can be rolled back if the money is still there.

If anything that's a concession ("your business can continue, we aren't going to make your website shut down while you jump our hoops").

I wonder how much money PayPal has made keeping so-called fraudulent money in their coffers.

PayPal doesn't keep money it freezes for risk checks. If they determine fraud, then the money is returned to the sender (usually by force, as the reason it was held was due to a chargeback or bank reversal). If there was no fraud, then it's paid out after a 6 month hold.

Do they can collect interest on the money whilst they hold it?

I don't recall, but in all my other merchant agreements, it's stated in writing that funds held in reserve will be held in a non-interest-bearing account.