How or why are these above templates choosing the wrong size paper?
It's a slightly screwey story, but there is a reason for it.
For all the printers I've worked with, it doesn't matter what the application thinks the paper dimensions are, as long as the printer settings specify letter-size paper. The only time it makes any difference is when the document actually tries to print in those regions, which the labels don't.
I agree, the shipped templates for standard label products should "just work" without needing this oddball setup, but unless you can make a case that the current template really don't work, I don't think there's going to be a lot of interest in 'fixing' it.
How does the strange paper size cause problems for you?
You should be able to make a customized OOo install set, including your tweaked templates, which you can then deploy, or you can just install more templates in the shared template directory and teach people how to find them.