Other than following DrBytes suggestions I'm almost out of ideas too (although I think that for LP to "completely disabled the firewall for a week of testing" seems a bit sus. Few hosts would do that for a single user complaint, so if it is something they did do then clearly you are not the only person with this issue, OR, they are simply feeding you bulldust).
Anyway, I'm not sure if it will provide any clues or not, but if you have command line access to your server, please enter the following commands and report your results:
nslookup api.paypal.com
traceroute api.paypal.com
ping api.paypal.com
Cheers
Rod


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