[bloo3]

What is the problem with my line of reasoning?

Mechanism takes place in acidic solution.
1) Protonate the carbonyl oxygen.
2) Break the pi bond and neutralize positive charge.  Oxygen on methanol attacks carbon to form tetrahedral intermediate.
3) Electrons come down to reform pi bond and carbonyl.  Ring oxygen is best leaving group.  Ring is broken.
4) Proton transfer from positive charged ester to O-. 

[bloo3]

I realize there is an extra step in the picture.  I have removed that, but it is still not accepting my answer.

[hypervalent_iodine]

There are several things wrong with your answer and in your arrow pushing. To start with, why do you suddenly have a cyclic ester in your second image?

[bloo3]

Ah, I think the picture got cut off there.  Let me reupload.

[bloo3]

Here is the new picture.

[hypervalent_iodine]

The arrow pushing in your third image is a bit all over the place. You have too many of them coming out of one bond for one. It's also important to think about the conditions. In the structure directly after that you have a negatively charged oxygen shown, but this is in acidic solution. Do you think that structure is likely or do you think something might have happened prior to the ring opening?

[rolnor]

I want to add that the lactone is more thermodynamicaly stable then the open-chain ester and the reverse reaction is much more likely under acidic conditions.