Change your Paper type in the Paper Handling Menu. Is paper fed from tray 2 or tray 1? Either setting, the paper type can be changed using the control panel. Press the green button to enter the menus, then using the "down" arrow button, press until you notice the "Paper Handling Menu". You can change the setting from Rough Paper to Plain. I hope this helps.
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You shouldn't really have to do much. Just change the paper tray setting to labels of the appropriate size. It should prompt you to be sure it's right when you put the paper tray back in. Just make sure the labels you use are rated for use in a laser printer. Ink jet labels will come off and wrap around the fuser and ruin it. about a $300 repair.
Are you using Window 7 64 bit or 32 bit? Re-install drivers appropriate for that version of your operating system. Also look at the "Paper Handling" section in the printer menu. Be sure both trays are set for "Plain" paper.
OK, if the printer says jam but no paper inside and prints after you open and close the cover the paper likely never made it out of the tray. Or the machine thinks the page never made it out of the machine.
As far as input check your rollers 1 in the tray and the pick up roller in the machine if you don't have alot of pages on the machine these likely OK.
Next (and this I have found often) check the paper back stop in the tray. This is the guide to set the length of paper. If it is set just a little long the roller cannot catch the edge of the paper. Sometimes the teeth the guide sets in are broken or worn.
The output would be the sensor in the fuser replace fuser.
Hope this helps