You need to sign up for the direct payment service from the paypal account in question. This costs $40 per month and needs to be agreed to on the paypal site before transactions can go through.
This error basically means you have everything set up correctly on your php pages you just have to sign up for the service on the paypal website. The service is called "Paypal Direct Payments". If you can't find where to click to sign up for the service on the paypal site then try contacting their support directly. They basically have to flip a switch on their end to allow your transactions to go through.