you have created the size list as a seperate form, it needs to be included in the same form ass the other hidden elemens:
<form target="paypal" action="https://www.paypal.com/cgi-bin/webscr" method="post">
<select name="os0" id="select">
<option value="small">Small</option>
<option value="medium" selected>Medium</option>
<option value="large">Large</option>
</select> <input name="on0" type="hidden" id="on02" value="size">
<input type="hidden" name="cmd" value="_cart" />
<input type="hidden" name="add" value="1" />
<input type="hidden" name="bn" value="webassist.dreamweaver.4_5_0" />
<input type="hidden" name="business" value="XXXX" />
<input type="hidden" name="item_name" value="Womens T-Shirt" />
<input type="hidden" name="amount" value="29.00" />
<input type="hidden" name="currency_code" value="USD" />
<input type="hidden" name="return" value="XXXX" />
<input type="hidden" name="cancel_return" value="XXXX" />
<input type="hidden" name="receiver_email" value="XXXX" />
<input type="hidden" name="mrb" value="R-3WH47588B4505740X" />
<input type="hidden" name="pal" value="ANNSXSLJLYR2A" />
<input type="hidden" name="no_shipping" value="0" />
<input type="hidden" name="no_note" value="0" />
<input type="image" name="submit" src="http://images.paypal.com/images/x-click-but22.gif" border="0" alt="Make payments with PayPal - it's fast, free and secure!" />
</form>