The Scenario: I have a world currency selected in my configuration, however when I go over to PayPal to complete a transaction, the cost is changed to USD.

It is not a problem with the software changing the currency to US dollars. It is Paypal that doesn't recognize it. Here is a list of supported currencies that Paypal supports and was taken directly off of the paypal website.
* Canadian Dollars
* Euros
* Pounds Sterling
* U.S. Dollars
* Yen
* Australian Dollars
* New Zealand Dollars
* Swiss Francs
* Hong Kong Dollars
* Singapore Dollars
* Swedish Kronor
* Danish Kroner
* Polish Zloty
* Norwegian Kroner
* Hungarian Forint
* Czech Koruna