I noticed magic_quotes_gpc is on in your config; it is Off on mine. I don't think that would cause this issue, especially since it's not one of those config options Drupal seems to care about. Interesting, nonetheless. The only other thing is that I noticed PHP is being run as CGI? And not an Apache module... I doubt that has anything to do with it, either - just something that caught my eye.

In either event it just seems that your UPS request is not getting posted correctly. Might require some digging into the code or writing a custom module that just does some basic testing with POST. I'm not sure what else the problem could be caused by - sorry! Lyle, if you have any input...?