Epson 2200 error

Got the maintance manual and tried to locate the problem. What is happening is:

1 Turn on printer and it feeds a sheet of paper.
2 Paper goes by PW sensor and stops (too far in). Does not move paper back to the correct positon. Tried it on ADF and manual and same thing happens.

3 All ink lights start flashing.
I think it is the paper detector but there is nothing in the maintenance manual that I can find to fix the problem.
Spent a small fortune on this printer, ink and archival paper and would like to get it working again, if possible.
I have talked to Epson (that's a laugh) and Dawn Electronis several times and basically was told that for an additional $175 they would work on it (additional service charge).
I fell that I have been really ripped off.
If it can not be fixed, I just wasted $3,000 and it is going into the trash.
Would never recommend Epson printers again.