Well you are formatting in Epub 3 and I'm not so well up on that format.
But here's something you could try. The error from your kindlegen conversion showed "media file format not supported ". Your original cover was in jpeg format. So why not try converting the cover image to "png" format using a graphics program like irfanview then insert it back into your epub and try converting it again with kindlegen....
Why not try my free Sigil plugins now available on MobileRead?
CustomCleanerPlus - an epub-specific custom cleaner for both html docs and epubs
ConvertAbs2RelCSSValues - converts all cms, mms, inch, point and pica values to relative 'em' values in the epub css.
AddKindleMediaQueries - Optimally dual-formats all epub image entries both for KF7 devices(in pixels) and KF8 devices(as a %)