I was able to replicate this and I believe that the problem stems from the fact that the envelope tray is not included in the driver as an optional accessory. I looked through every section of the configurable settings and there wasn't a toggle for 'Envelope Tray' that I could find. If the system doesn't know that tray 2 is an envelope tray than you'll always get this conflict message. I proceeded to setup a queue for an AltaLink C8145, which can only have the envelope tray installed in tray 1, and that model does show the envelope tray as an option. Once I enable the envelope tray on the AltaLink I will get your error message if I select to print envelopes from any other tray except for tray 1, because only tray 1 can have an envelope kit.
I believe that the machine will accept envelope print jobs from that tray as long as you aren't using the Xerox driver. If you setup the Workcentre as a generic printer, AirPrint Printer, or driverless (IPP Everywhere) and send these jobs I do not expect the printer to reject them.
If you have a service contract I would report this to your local Xerox servicing company and have them start a log in regards to this.
You can take a look at this article for loading envelopes, also make sure that the settings in your driver match exactly to the settings of the tray.
If you are still having issues after trying these steps, I suggest that you call into our support department for assistance @ 1-800-821-2797 or 1-800-835-6100
I have a dedicated envelope tray as tray 2 in the copier. On the copier, Tray 2 is set as Envelope as the type. On the computer, under Xerox Feature I have 'Envelope' as the Paper type and then under 'Paper Handling' I select 'Envelope #10' as the Destination Paper Size. Now, if I go to 'Paper Feed' and select Tray 2 I get an error that reads... "The Paper Tray option, Tray 2, is not available when the destination paper size is set to Envelope #10". The reverse happens as well, if I set the tray to Tray 2 and try to change the paper size to Envelope #10 I get a similar error essentially saying that I can do that. Tray 2 is an envelope tray and there are #10 envelopes loaded in the tray. Any thoughts?