Qolsys engineering got back to me and they are saying that the sensor cannot work as both the reed switch and the input independently. They stated that it only works as either a wired input or a reed switch. The other must be left open and programmed as a Door Window, not a Door Window - M (multifunction type).
This is an odd limitation, but it jogged my memory and it has actually come up before:
I was expecting Door Window - M to work for it since it is what is used for things like combined shock/door window sensors, but it does not.