1. Let's forget Service Mode. I don't think that it is needed to resolve this issue.
To be certain that you're in Normal Mode unplug the printer and then replug.
2. The key to using refills with this printer is to understand that the printer will "read" a refill as though it's an empty Genuine cartridge.
You have to tell the printer to continue printing when it reports the refilled cartridge as empty.
With this printer you lose ink level monitoring with refills.
I asked an inkjet refill expert, Mikling, about this and here is his quote :
"You can't turn the ink monitor off but you can instruct the printer to continue printing with an EMPTY cartridge.
The buttons to push to do this varies by model.
To locate the instructions one needs to find the section where they instruct you how to Change an empty cartridge. Typically this can be found under Routine Maintenance. Within that section they will instruct you how to Continue printing with an empty cartridge. After the cartridge is refilled it is considered empty by the machine since the ink level indicator cannot be reset. The machine will be fully functional as with a new cartridge except that the ink level monitor will not work."
In your manual start reading at about pg 69.
If you don't have a manual D/L one here:
Click on Drivers and Downloads then:
Click on Product / Software Manuals
MP160 ug us V5.pdf