The Google self-driving cars operate under the Neighborhood Electric Vehicle Definition per 385.5 of the California Vehicle Code and can only be operated on roadways with speed limits at or under 35 mph. In this case, it was lawful for the car to be traveling on the street as El Camino Real is rated at 35 mph." Maybe my confusion is that El Camino Real is RATED, not POSTED 35? But if it is legal for the car to operate AT OR under 35, and the speed limit is 35....the it was unlawful to be there how?

I don't think you read that right. The precedent is that retailers won't put up with that crap from states, and would stop selling to people that live in any state that tries the "internet tax". NOT that states wouldn't allow the retailers to ship to their states.