I'm also working on this section of the code. I modified the payPalCheckoutUpdate service so that instead of calculating different rates, the only thing that gets sent to PayPal is a flat shipping rate that we define and use throughout the web store.
The problem I am running into now is that when PayPal sends its call back request to my server for the shipping options, our server writes back the proper flat amount but that value never gets placed onto the screen unless a "condition" is met. If the "condition" is not met it remains at 0.00 with the option name "Calculated Offline". That "condition" is if the first line item has a quantity greater than 1. The reason i put condition in quotes is that I don't see anywhere in the code that says to do anything differently based on the quantity of a line item.
So, basically, if i add an item to the cart and go through pay pal, the shipping estimate comes to 0 even though our correct flat rate is sent during the call back. If, after adding the item, you change the quantity to let's say 2, when you then run the order through paypal, it "recognizes" the new shipping amount that was sent back to it. Same code, only difference is the quantity. When it's set to 1, it doesn't work, otherwise it does.
So, I wanted to see if you, Scott, had made any progress as I see you also were having troubles with the shipping estimates.