So the PayPal plugin worked correctly for the Order Form and OTO #1,
but when I complete the transaction for OTO #1 and click “Return to merchant”
it redirects to my Order Wall, completely skipping OTO #2 that i have setup.
OTO #2 is a downsell page, but I have set it up via the “general settings” tab to go to the next step in the funnel no matter what.
Also a side note, for Version 1 of Paypal plugin, the dynamic order wall does not update and remains at #xx.00. is it not compatible?
Let me start with last issue:
That’s a known limitation in Clickfunnels (along the STATS one) they promised to fix it a while back but so far no progress on that yet… We will be working on a “side” solution for that which you can use in case Clickfunnels doesn’t do it.
You don’t have to click “Return to merchant” check this tutorial for automatic upsells 
I don’t understand what you mean, but In Funnelish there are downsells as well… a downsell is an OTO to wish our app (or CF) takes your customers in case they said “NO” in an OTO.
So if they said YES! they won’t see the downsell,
Downsells, are usually used to promote another further discounted version of your previous OTO.
If they will see your offer no matter what they clicked (YES or NO) then that means it’s an upsell not a downsell.