I still haven't gotten it to work. I'm at a complete loss.
But in your case--
masterblaster:
Paypal seems to add a 3$ shipping charge to all orders under 10$ value. All orders above 10$ are processes just ok.
...
--it sounds like you need to change the shipping preferences ("Shipping Calculations") in your PayPal account profile. Scroll to the bottom and hit the "Clear Settings" button.
I believe you should also check the box under "Miscellaneous — Allow transaction-based shipping settings to override profile settings (Optional)" (someone correct me if that is wrong -- I've tried ZenCart purchases with this on and off, and it didn't make any difference, but it sounds to me like we would want this checked).
Basically, the cart needs to figure out all the shipping/tax costs; and the total amount (all items + all shipping + all tax added together) is the amount that goes to PayPal. (Which is somewhat unfortunate, since there's no itemized listing on the payment page -- just a total and your store name.)