We have a couple M&D puzzles and a toy train. None of them have chipping paint yet. I have read a few posts here that it does happen. I also read that someone just called, emailed, wrote (whatever the method of communication was) M&D and they sent them out a new one.
If it were me and the kids were still mouthing toys, I wouldn't let them play with it. That being said, on the website where a group of people test all kinds of toys for different toxins (I can't find the link or I would give it to you) they did test a M&D toy and it came out in the low category across the board.