I cannot see how charging $2 for shipping with actual postage of $1.25 is a rip off

You have the cost of an envelope, a 2x2 or flip, packaging, and time and effort. Obviously, the people that charge $5 and then just drop a 2x2 in a first class envelope with nothing more than a 44 cent stamp are fleecing their customers a bit but that is not the case with a measly 75 cent difference. Free shipping is an abomination solely created by
ebay to increase their fees, very very few would offer free shipping if
ebay did not incentivize it. Of course, it is just one more step towards fixed price listings as opposed to a true auction format. You can always account for shipping costs in a fixed price listing.