Hi Mihai, thanks for your response. I still need your help.
After updating the wp-ecommerce manually via FTP it seems there is still an issue with this field, but it is now acting different compared to the previous version.
Here is my experience (wish I could include screenshots) but please try checkout for yourself on estesleather.com - I have confirmed this issue to be the same experience with different machines, operating systems, browsers, and other users than myself.
Here is whats happening now: After adding an item to the cart and going to check out, the shipping options do not show even after selecting my country and state and clicking calculate. Then I fill out the form, and in the billing address, the state field is not a drop down, it is a text field. Once I fill out the the text field with my state, I use the drop down to select my country. Upon choosing my country, the billing address state text field turns into a state drop down field type and I have to re-select the state from the drop down. After finishing my billing and shipping info, I click purchase and the check out page reloads with a message in red saying "Please select one of the available shipping options, then we can process your order." So, now there is an option for shipping and I can click purchase and move onto PayPal Standard checkout.
So basically, shipping options and the state field in billing address are still acting odd. At least I can get to the PayPal now, but there are still those user hiccups causing extra steps during checkout that could loose a sale...