Nesting usually means the top thread's tension is off. If the top thread isn't picking up the bobbin thread, there may be a timing issue. Hmm. Is the needle inserted correctly? I have a 1603 (the one with the silver foil finish). If you were to take a picture of anything odd, I could compare...
The holes in the fabric w/out stitches could indicate a timing issue or a threading issue (or several other things). My method would be to try to isolate the problem. Make sure you're threading it absolutely perfectly, the needles is inserted and threaded going in the right direction, etc. Put it into straight stitch and move the hand wheel very slowly and see what the needle bar does. Does it strike the plate or come close? If not, does it make a stitch? If not, adjust the tension and presser foot pressure and try again, etc.