I had the same problem, PayPal customer service said "I went through all the package types for USPS labels. We only have the options for flat rate envelope, package/thick, and padded flat rate. Those are the options given to us from USPS. There is not a way to add a different package type. If you needed to specify legal size you would need to purchase directly through USPS."
Then PayPal customer service told me that "if USPS is going to charge more they have a short pay program and it would charge you when you create another label and email you."
To clarify, that means that if I mail my legal-size flat-rate envelopes with letter-size postage amounts created in PayPal shipping, USPS will deliver them and may (or may not) charge me next time I print a label on PayPal. I tried this and wasn't charged extra, but obviously I can't give any guarantees.
