Hm.. well I do understand what's happening, for the most part. For some reason, that mod appears to be modifying the recipes of all buildings in the game, most important of which it does, is setting "allow_productivity" to true. This property I use to gate intermediate products to tier 3, since only intermediates use this property in vanilla. This is why you're getting the message that buildings can't be recycled at lower tiers.
I'm not entirely sure why their mod is doing this, perhaps for some hacky method of modifying building stats on tiled surfaces, but fixing the conflict would be an issue on my end.. If I simply ignored the "allow_productivity" field, then any tier of machine could recycle intermediates, and there'd be no need for 3 tiers of machines. For now, I've raised the issue with the other mod here