Hi Mike,
Sorry but shipped product scenarios have not yet been addressed in the WebStore feature, hopefully that will be completed sometime in 2010.
I do not see anything in the documentation about a "type" parameter that can be passed to paypal. In any case even if there was a param to pass both downloads and shipped items would fall under "Goods". So if you have set shipping globally for Goods in your PayPal account I don't see a way around it using the current features of the webstore.
If you are charging a flat rate for shipping then instead of setting it up at PayPal just bundle it into the product price.
For now I do not claim to support shipped products, only downloads.
Best,
Joe