It could be the location of the bar codes. When I use the automated kiosk, it shows a picture that the postage meter should be in the upper right corner, while yours is on the left side of the envelope (and upside down). The kiosk also shows that the tracking number goes at the top of the envelope, with the "Place this label to the left of the postage" tab folded over to the back side of the envelope.
There must be a reason that they say this, perhaps their scanners aren't versatile enough to find the barcodes placed anywhere on the package.
If you ask a helpful clerk at the local post office, they may have other advice. (just don't try to visit the P.O. on tax day, oh my gosh).
Update:
USPS manual says:
Quote:
8.4 Invalid Postage
Priority Mail Express items bearing invalid postage detected by a Postal Service device must have a Label 424, Invalid Postage Return Label, affixed and be returned to sender.
Maybe the machine didn't like the $1 postage meter as full payment for postage, and the machine didn't see the rest of the postage. Interesting "Postage Due" handstamp with no amount filled in. Definitely a question for the USPS, but since "you didn't follow the rules" for placement of the bar codes, I doubt that they would refund you the postage fee even if it was their error.