I don’t understand why you think this is a problem.
Paypal is just enforcing the settings you specified. In your Paypal account you can tell it whether you need the address supplied by the customer to be verified or not. If you say yes, which most people would if they are shipping something, Paypal won’t let the transaction proceed if the address entered by the customer is not valid. So for a test order, you have to enter a good address because you told Paypal to check it.
This is separate from the address_override flag that you send on the transaction. That flag just indicates that you are sending the address for the customer and whether or not they can change it at Paypal.
I just spoke with an agent at PayPal and he said this is a problem they are having and it should be resolved by this evening (Wednesday November 19th).