Try updating your printer driver.

I generally use my own envelope template that I know works. This allows me a much nicer return address and layout. To use this with merge, I simply start it as a letter merge using the envelope as the primary merge document.

Everything I know about envelope printing I learned from Graham Mayor's site. I would recommend going there and searching for "envelope." You'll find a wealth of help and information. This will take a little time, but in the long run will be worth it.