Welcome to the forum, @Neal! Thanks for the report.
Without seeing the exact format of the [Time] variable, just by looking at the screenshots, it seems that your “headlines” aren’t actually headlines but just timestamps w/o headline formatting. (AFO expects actual MD headlines, tho, i.e. # …, ## … etc.)
So what I think is happening is that Prepend Text To A Note checks if there is a headline “1/1/01, 11:17 AM” (current time) but there isn’t, so it adds “1/1/01, 11:17 AM” to your document, then tries again to prepend the block below the headline “1/1/01, 11:17 AM” (which still doesn’t exist because “1/1/01, 11:17 AM” isn’t a headline), then gives up. I could be wrong; hard to say by just looking at screenshots.
So, does your [Time] variable in the Prepend Text To A Note action contain any headline prefix syntax? If not: What happens if you change [Time] to ## [Time] – does it work then?