"but the amount was previously converted. AS it seems in publication 509, the order of distribution is converted amount first, then earnings."

https://www.investopedia.com/terms/o/orderingrules.asp

https://www.investopedia.com/retirement/tax-treatment-roth-ira-distributions/

"it is still being taxed?

Is my only option now to use Code 7 instead so it's not taxable since it is return of contribution?"

You don't just randomly change from entering what is on the 1099-R to what you want as results. Have you confirmed this account meets any/all of the 5-year rules?

https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp

https://www.investopedia.com/terms/f/fiveyearrule.asp