I am using Invision Power Board 2.1.1 with no modifications. I use the IPN system for my website, with PayPal as the only option of payment, I have about 500 subscriptions active within this, and each month they are demoted to a normal member again, even when their subscription is active and are still paying, on the transaction logs it just says for each person "Expired", even when their subscription on PayPal is still active and are paying monthly.

Is this a problem with my settings, or just something IPB doesn't fully support?

I'd post a support ticket for this. I have never had a problem with the feature.

I would submit a ticket, and based on the response, report it as a bug.

But please check with support, before you report a bug, that might just be a configuration issue.