Just an update here... in case this info can help someone else.

We continued to test the USPS Shipping and Rate calc, with our account in the testing mode. We were NEVER able to get a successful rate response from the testing server.
We referred to the Doc from USPS...
http://www.usps.com/webtools/htm/Rates-Calculatorsv1-0.htmwith respect to correct syntax, etc., and could find no problems with the info we had entered into the Shipping module config page.
We then took the first sample from the USPS doc and manually posted the XML to their test server...and got a GOOD reply with rates for the first time.

Long story short.. it appears that their Testing server will ONLY reply to the two sample XML tests in their manual...and NOTHING MORE... if you change anything... it replies with errors.
Here are the two test samples:
Test Request #1
PRIORITY
10022
20008
10
5
Flat Rate Box
REGULAR
Test Request #2
All
10022
20008
10
5
LARGE
TRUE
Once we knew it worked, we requested a change to the Production server and tried it live... with Priority as the service and Flat Rate Box as the container.
We got nothing but errors, no matter what the size or weight was.
FINALLY, we changed the Container to 0-1095, since we saw that in the code sample....and it worked!
NO WHERE in the USPS doc does it list numerical references to standard containers. We are waiting to talk to USPS techs on this item.
A web search turned up this info from an osCommerce discussion...
//Services : EXPRESS, PRIORITY, PARCEL
//Zip codes : 5 digits only
//Containers :
/* Express Mail
None For someone using their own package
0-1093 Express Mail Box, 12.25 x 15.5 x
0-1094 Express Mail Tube, 36 x 6
EP13A Express Mail Cardboard Envelope, 12.5 x 9.5
EP13C Express Mail Tyvek Envelope, 12.5 x 15.5
EP13F Express Mail Flat Rate Envelope, 12.5 x 9.5
Priority Mail
None For someone using their own package
0-1095 Priority Mail Box, 12.25 x 15.5 x 3
0-1096 Priority Mail Video, 8.25 x 5.25 x 1.5
0-1097 Priority Mail Box, 11.25 x 14 x 2.25
0-1098 Priority Mail Tube, 6 x 38
EP14 Priority Mail Tyvek Envelope, 12.5 x 15.5
EP14F Priority Mail Flat Rate Envelope, 12.5 x 9.5
Parcel Post
None For someone using their own package */
//Size : REGULAR (L+W < 84") EXPRESS PRIORITY PARCEL
// LARGE (84" < L+W < 108") EXPRESS PRIORITY PARCEL
// OVERSIZE (108" < L+W < 130") PARCEL
//Machinable : required for PARCEL only and is TRUE or FALSE
Apparently...THESE container name are the ones to use... to make it actually work!
Hope this log of troubleshooting helps.