Do you have McAfee Security? Fought with this issue for two weeks, Lexmark even sent another printer. Installed new RAM (thinking it might be not enough/bad RAM), uninstalled service pack 3, FINALLY got rid of all things McAfee and voila! We now can print.
If you don't have McAfee, check for other security programs that might be interfering. I even thought it might be a Microsoft update.
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Before you print, check the printer settings and see if it is set to choose paper automatically. If it is try manually setting it to the tray 1 you mentioned. This may stop the printer from checking every time it is grabbing paper. Also try keeping the other tray slightly open which may automatically tell the printer to look right away at the other tray.