So many problems...
The electronic counting of votes was considered necessary because of the complexity of the vote counting mechanisms: the Scottish government election votes were counted both by first past the post and by the D'Hondt system and the council votes were counted by single transferable vote. It was felt by the Scotland Office that results could take days to appear if counted manually.
One big problem though, at least the one reported at the time, seems to have been that the vote counting machines could not cope with ballot papers of more than a certain size - and so many candidates were registered in some regions that there wasn't room on the ballot paper for both the candidates and the instructions on how to fill in the ballot paper correctly. Instead of falling back to manual counting at this point, Douglas Alexander's Scotland Office decided at the last minute to remove the voting instructions from the ballot paper where necessary to make room for the candidates. So in some regions the instructions were left off, or severely curtailed. Those were the regions that had the highest number of spoiled ballots.
Another problem was the bizarre decision, again by Douglas Alexander's Scotland Office, to amalgamate the two separate Scottish government votes on the one piece of paper. Nobody had seen such a ballot paper before and it baffled a lot of people; particularly where the instructions had been removed!
By contrast, the single transferable vote was used in the same election for the very first time for the council ballot, and voters seem to have taken to it like a duck to water; there were almost no spoilt council votes, as I recall. Which is interesting, when one big reason for adopting the bizarre FPTP/D'Hondt system in the first place was that voters were said to be incapable of coping with STV - or so I remember from the late 90s, anyway...