I got the issue fixed
To anyone coming up here from google searches, it had to do with my identification info in particular and the PayPal UI basically tucking away a lot of the settings involved in getting this fixed. Do not use the message-center based customer support. It will run you through the biggest loop in which you will strictly get copy-paste answers until they just tell you to call them. Save yourself the time and just call PayPal directly right from the get-go to talk to an actual person.
itch.io has adaptive payments where if any of the parties has something misconfigured(between you, itch.io themselves, and the person paying you through itch) then it will cancel the transaction and refund the entire transaction. So be sure your account is carefully configured and if nothing in the UI directly implies this then call them directly and they can tell you the actual statefulness of your account to guide you and tell you what is missing. For me it was literally my date of birth and to confirm the SSN I already put in, but due to the PayPal interface not having any way to get to these prompts I had to call them directly and they were able to configure my account to be able to set myself up with a proper PayPal Cash account.