Ultimately: the administrators weren't thinking about ballot issues. Palm Beach, Florida, was understaffed and underpaid, under-invested. They had other things on their mind when they deployed their machines.
They needed to move off of the punch-card system ASAP, but they couldn't afford to. They had the same issue in 1996 before the famous year 2000 issue. It was known, but not much could be done about it.
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I guess this printer methodology from DARPA might be too expensive. Or maybe the scanning machines can be owned by the state, so that poorer areas won't have to invest into the machines. Etc. etc.
There's a lot of issues aside from "use paper ballots". The entire voting system needs to be considered. I hope that DARPA's challenge will include these issues in their design process.
Sure, but moving money around to deal with that problem is easy (and mostly doable intrastate, but, a federal role isn't unreasonable.)
But this isn't a problem calling for novel technology. (As has already been demonstrated by the move to e-voting that happened in many places after 2000, though some people got the wrong message and decided that we just chose the wrong technical solution—but a lot of that is due to lobbying by the people selling technical solutions.)
They were particularly badly arranged punch card ballots; the solutions to both the bad arrangement (“don't do that, like most people didn't do previously”) and the punch card (”use optical scan”) related problems are not only well known but pretty widely adopted.