Was the item going within Canada or to the U.S./overseas?
If within Canada, there is no provision in Paypal labels to handle anything but domestic parcel services, even if your item does fit into an "oversize letter mail" category. If to the U.S. and your item (in the bubble envelope) was thicker than 2cm or larger than 38x27x2cm, then Paypal labelling will bump you up into USA Small Packet Air rather than USA Light Packet Air (which is much cheaper).
For U.S. destinations, don't give up on Paypal labelling. If your item fits within the designated weight and size for Light Packet, certain weight categories are actually cheaper than oversize lettermail. I find this is often the case, although every January Canada Post shuffles the weight classes when they change their pricing, so things may be different in 2016.
By the way, did you know that you can back out of a Paypal label process before actually hitting the "Purchase" button? If you see a price on that last input page that you don't like, simply use the back button and your purchase will not go through -- or you can use the back button to return to the main input screen and choose a different service. Once you've chosen to pay for the label, you're committed, and the only way to get your money back is to ask for a refund on the label (which can take weeks to process). It's much better to carefully check that final screen before committing to payment.
