No, it's not located in São Paulo...
Morro de São Paulo is a small fishing village located in Tinharé Island, south of Salvador.
Although it's already known to the tourism comunity in general, it still preserves the atmosphere and conditions that made it a special place.
Make sure you have the time to visit Morro de Sao Paulo, a small island about a 2 hr boat ride from Salvador. It is truly paradise. Very relaxing yet chock full of party scenes and water activities. Very reasonably prices by US standards.
Three to four days should be plenty to experience Morro, however, I know some brazilians who went for 3 days and never left. They own a restaruant there now.
The places that you must visit are Cachoeira, Ilha dos Frades, Ilha de Itaparica, Ilha de Tinhare, Ilha de Boipeba.
We spent almost a month and it was worth every minute...