Yes, Paper2 works fine. The only difference between the 2 rules are:
if (true && (($this->InCart("TargetShipping") == true)
and
if (true && (($this->InCart("TargetShipping") != true) .
If TargetShipping (which are also CategoryID 1 items) are NOT in the cart, shipping for 1 to 10 paper items is $9.50. If TargetShipping (which are also CategoryID 1 items) IS in the cart, shipping total for 1 to 10 paper items is free.
So, if a person ordered a TargetShipping (CategoryID==1) item which had a flat rate shipping charge of $17.50 AND 1 to 10 PaperShipping (CategoryID==4) items, the total shipping charge would be the $17.50.
As it is now, the total shipping calculates $17.50 + $9.50 = $27.00 total instead of $17.50, which tells me that this: if (true && (($this->InCart("TargetShipping") == true)
is being ignored.