Yeah, I forgot to mention it but that was actually the last product I was manager on before I left PayPal. It's actually been up and live for 2 1/2 years or so now. For any domestic "goods" transaction you receive through PayPal, a "Ship" button will appear next to that transaction in your log. Click that button, and then you can ship your goods via either USPS or UPS.
The USPS shipping interface is run through an API with "Click n Ship" (the USPS.com product), but it works much more smoothly and the postage comes straight out of your PayPal account.
The only things we don't ship using PayPal Shipping in our business are international orders, which we still have to fill out the customs forms and go down to the post office to mail.