Paypal SandBox IPN always returns INVALID

Edit:

Now that I can see the array you’ve outputted, try replacing this to get rid of the PHP array error:

foreach ($_POST as $key => $value) {
    if (!is_array($value)) {
        $value = urlencode(stripslashes($value));
        $req .= "&$key=$value";
    }
    else if (is_array($value)) {
        $paymentArray = explode(' ', $value[0]);
        $paymentCurrency = urlencode(stripslashes($paymentArray[0]));
        $paymentGross = urlencode(stripslashes($paymentArray[1]));
        $req .= '&mc_currency=' . $paymentCurrency . '&mc_gross=" . $paymentGross;
    }
}

Here is the edited code in full:

// read the post from PayPal system and add "cmd'
$req = 'cmd=' . urlencode('_notify-validate');

foreach ($_POST as $key => $value) {
    if (!is_array($value)) {
        $value = urlencode(stripslashes($value));
        $req .= "&$key=$value";
    }
    else if (is_array($value)) {
        $paymentArray = explode(' ', $value[0]);
        $paymentCurrency = urlencode(stripslashes($paymentArray[0]);
        $paymentGross = urlencode(stripslashes($paymentArray[1]);
        $req .= '&mc_currency=' . $paymentCurrency . '&mc_gross=" . $paymentGross;
    }
}

$ch = curl_init();
curl_setopt($ch, CURLOPT_URL, "https://www.paypal.com/cgi-bin/webscr');
curl_setopt($ch, CURLOPT_HEADER, 0);
curl_setopt($ch, CURLOPT_POST, 1);
curl_setopt($ch, CURLOPT_RETURNTRANSFER,1);
curl_setopt($ch, CURLOPT_POSTFIELDS, $req);
curl_setopt($ch, CURLOPT_SSL_VERIFYPEER, 1);
curl_setopt($ch, CURLOPT_SSL_VERIFYHOST, 2);
curl_setopt($ch, CURLOPT_HTTPHEADER, array('Host: www.paypal.com'));
$res = curl_exec($ch);
curl_close($ch);


// assign posted variables to local variables
$item_name = $_POST['item_name'];
$item_number = $_POST['item_number'];
$payment_status = $_POST['payment_status'];
$payment_amount = $_POST['mc_gross'];
$payment_currency = $_POST['mc_currency'];
$txn_id = $_POST['txn_id'];
$receiver_email = $_POST['receiver_email'];
$payer_email = $_POST['payer_email'];


if (strcmp ($res, "VERIFIED") == 0) {
    // check the payment_status is Completed
    // check that txn_id has not been previously processed
    // check that receiver_email is your Primary PayPal email
    // check that payment_amount/payment_currency are correct
    // process payment
}
else if (strcmp ($res, "INVALID") == 0) {
    // log for manual investigation
}

Check this out!

Edit: Check out the PayPal troubleshooting tips:

https://cms.paypal.com/us/cgi-bin/?cmd=_render-content&content_ID=developer/e_howto_admin_IPNTesting