@cajund there is fortunately a simple workaround to this problem: you can use Manuscripts with Papers directly using the Magic Citations citation tool supplied with Manuscripts.
This issue is most likely caused by there being some unexpected characters encountered when attempting to import the library (Papers itself does some limited form of validation when importing reference data and it can end up exporting data that doesn't go through cleanly in the format that it is exchanged with Manuscripts in). We are working constantly to improve the bibliography import features though (adding workarounds to reference manager specific issues for example) and sending us an EndNote XML (that is the format used when importing the Papers library) export of your library via email@example.com helps us ensure we've tested the feature with your library before we post the next update. Thanks for your patience!
CEO & Co-founder of Manuscripts.app Ltd