I suggest to complain to Paypal about this BS. But I am afraid they will ask you to create an account as a reply ;-)
To speculate, maybe the email did create a placeholder account and they reserve this account, should you decide to create an account later. Or they need to reserve it for a grace period for the transaction to complete to the point when it no longer can be reversed. But it still is a screw up. At least in the interface. They should at least pop up a message that you cannot do this as a guest with that mail adress. Or give the option to stay a guest, but use the mail again.