I don't know.... some thoughts...
I don't know what this form action in the paypal example is supposed to do. I've never seen that. In your XPages example you're using both an xp:form and then inside another form tag. This seems odd to me. I don't think I've ever used "xp:form" as a tag before. Since that's automatic for an XPage you might need to first disable auto generation if you want to control it yourself. And you've nested a form within a form.... That might not be a good thing....
So no real answers just a couple thoughts to focus on the use of the form tags. I wonder if you go down this route if you should put the paypal stuff in an iframe... try and seperate it from xpages that way.
Also I THINK paypal has different options... like REST services. That might be a better path in the long run. Not sure though.
This is a great question with good details. You might have better luck posting this on StackOverFlow and use the tag "xpages".
Dave