The OP has been to his legitimate PayPal account via the web and found the same requirements there. This is not a scam. It is a result of much tighter government controls on financial institutions under the guise of preventing money laundering and payments for illegal goods, etc. Read the PayPal T&C and recent policy and you'll see that is the case. I have already been through this miserable process and hope to never have to go through it again!
If you want the money you have no choice but to comply. Furthermore, if you don't supply ALL of the documents quickly enough, those you may already have uploaded will go out of date and become useless for the process. It's a major pain in the butt but what's the alternative?
Of course you don't send anything to them via email. Of course you should change your account password regularly, too. As for getting your identity, correct me if I'm wrong but don't they already have your bank account and credit card details? Unless you have a security clearance for some high-level security government body, what else could they be after?
I sympathise with your dilemma but don't let government red tape leave you paranoid. It'll drive you crazy enough without that as well!