I read a section in the manual about "manually setting the registration marks", so I also tried that. It proceeded to go, starting with recognizing marks #3&4 first, then it started its "shimmy dance", half way across the material before stopping and alerting me once again of the problem. (Think I'm gonna try printing a comepletly diff print to see if it happens again.)
When you run a manual alignment it shouldn't try to read any crop marks itself. Once you have B123 set you just send the cutting data and it cuts. It sounds like you left Crop Marks 'on' in Versaworks which will override your manual alignment. You need turn them off then just send the cutting data, it seems like it shouldn't work but it does.
Tip: When you do the manual alignment, take the blade out and put it in the holder upside down, then reinstall it. You can use the opposite end as a center point to align with the small arrows. Press the blade holder down and the point will leave a dent in the vinyl. Just don't forget to turn the blade back around before you cut the job
Looking at your print it looks like you have the pinch rollers right on the edge of the vinyl. Roll the vinyl out and check the the crop mark isn't under the pinch roller. The media width when you reload the vinyl has to be equal to or greater than the original job width or it does funny things.
If it reads the first mark then misses the second, it's usually because the vinyl isn't straight or it thinks it isn't straight. Maybe the test print in the background is throwing the sensor off. Stick some strips of white vinyl around the black rectangle. If the front edge of the vinyl isn't square, line up a ruler with the cropmarks then draw two small lines at each edge of the vinyl. Use these to align the job.