I FOUND THE ANSWER! WOOOO HOOOOOO!!!
Found the error in another post. Here it is:
I also faced the same problem. Here is the solution. Open paypal_standard.php file in ctalog/includes/modules/payment folder.
Comment the line number 297 i.e.:
if (is_numeric($sendto) && ($sendto > 0)) {
// $parameters['address_override'] = '1';
$parameters['first_name'] = $order->delivery['firstname'];
$parameters['last_name'] = $order->delivery['lastname'];
$parameters['address1'] = $order->delivery['street_address'];
$parameters['city'] = $order->delivery['city'];
$parameters['state'] = tep_get_zone_code($order->delivery['country']['id'], $order->delivery['zone_id'], $order->delivery['state']);
$parameters['zip'] = $order->delivery['postcode'];
$parameters['country'] = $order->delivery['country']['iso_code_2'];
} else