tpeck:
I think the only thing to do is not display the Express Checkout button because clicking on that button - even with active coupons - goes straight to PayPal. The customer can't enter a coupon and bales out, and we lose a sale.
Saw your post yesterday, but hadn't taken the time to review what you were reporting as compared to what I expected to see.
My suggestion, with whatever route you choose, is to try to let customers know what to expect. Ie, coupons won't be entered in paypal, but are applied after providing payment information.
As for when paypal shows up, there are basically two times when it is possible to appear (under default installation), before providing shipping info or at the completion of collecting information.
If allowed to be before shipping, then definitely want to let customers know/understand what is going on by going into PayPal: not actually charged yet, collectingpayment information, generating account if one has not been previously or logging in if one has, collecting address information, etc... As far as coming back and being able to enter a coupon, at the moment not sure what is not set preventing that portion of the process. It appears (or did, I think I disabled coupons and gift certificates recently) on our site and so now I think it bypasses that one page now.
