I have some experience of using paypal with an asp.net website, however this issue has me really stumped.
Root of the problem: You cant embed the html form for the payp
Had this issue with another payment provider also. You could either use their API, or you could work around it by:
i.e. ClientScript.RegisterStartupScript(Me.GetType(), "PaypalSubmit", "
Hope this helps, otherwise you could use the web service API. By taking this approach you are performing a postback, outputting the HTML form (outside the .NET form because it is at the bottom of the page) and then relying on the javascript to actually submit it.