Hi OmgFrustrated,
Thanks for reaching out to us here on Community. First-Class Parcel service is the service title. As such to create the label you would want to select one of the package options under this. I understand the frustration this causes as with the drop down it is all in one. It does not separate or change the color to indicate package is what to select here.
From your post you state you have selected "package/envelope", regrettably the screenshots are showing First Class Mail Parcel service selected. I would ask you try starting new, and selecting the 'package' you would like to use. This should now allow you to continue with the label creation. One tip I can provide is anything with a timeframe next to it will be a service title.
Hope this helps. 🙂
-April
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