Thank you KatherynJoyce,  I'd like to follow those instructions.  So here's what I did. 

For each sales receipt that ended up in the P&L under "PayPal Sales," I found the correlating deposit transaction in the "Already Categorized" section of banking for PayPal and "Undid" each deposit transaction. 

This eliminated the sales receipts "sales of PayPal" from appearing in the P&L (Yay!).  Now... what do to with each of these transactions in the "For Review" list on the Banking Transactions PayPal screen of QBO?  

The options QBO gives for each PayPal sale transaction is either:

"Categorize" as a Sales Receipt or Deposit or Transfer

or

"Find match"

The latter, "Find match"  errors out with "No Matches Found"  So that's of little help for now. 

If I Categorize the PayPal transaction (sale) as a Sales Receipt, it rightly counts it as income, but also creates a sales receipt that shows up on the P&L and appears to double count it. 

If I Categorize the PayPal transaction (sale) as a Deposit, it rightly counts it as income and everything is fine. 

Here's where this introduces a new and different cause/problem.  The RULE for entering PayPal Sales transactions instructs QuickBooks Online to add the transaction as a "Deposit" but instead, QuickBooks Online enters it as a Sales Receipt - which causes the double counting and the problem on the P&L. 

Does this seem like a bug in QBO or am I missing something important? 

Thanks for your help.