I've done both label server and UPS label API. We're using pdf currently for label server then having users hit the print button. For ups though we are using the epl format for the eltron 2844.
You're on the right track but the label has to be downloaded server side the served to the client browser. The approach I took for epl was write a very small app in .net that is associated with the .epl extension. When the browser servers this extension it fires my little app and all it does is read in the file and send it over to the label printer. It requires having the app installed on workstations but it is very reliable and works in one click.
I think you will find that the way paypal does it is with a java applet, that would be another route you could go.