Don't know if this helps in tracking down this problem but...
Also getting errors:
Invalid Credit Card Number or Credit Card Verification Code.
Error: Invalid Credit Card Number or Credit Card Verification Code.
Error: Failure in Processing the Payment (ps_paypal_api)
Invalid Credit Card Number or Credit Card Verification Code.
when PayPal API is the only payment method (and therefore the payment method selection is skipped in the checkout process).
The express checkout option, if enabled, works fine, but not a solution for me as I want to collect user's shipping info on my site.
If I also enable PayPal Legacy as a payment method, then the checkout process does not skip the payment selection step. Now I can select the PayPal API option, and it all works fine.
However, it also displays options for PayPal legacy, which works OK, but the PayPal site requires me to use (or register) a PayPal account, and does not give me an option to pay by credit card without a PayPal account in the way that the API version does.
Enabling PayPal Legacy as a second payment option also allows the user to select Credit Card as another payment method. I have no idea where this comes from - it's not the credit card option that is listed in the backend config - and if selected generates the same errors above.
As an interim measure until VM1.1.7 comes along I'd be happy to have that Credit Card payment method suppressed. That way I can at least name the payment methods "Credit Card via PayPal" (for the API), and "With PayPal account" (for legacy), or some such, and not have the user too confused.
I'm using Joomla 1.5.22, VM1.1.6, and a PayPal sandbox.