The problem is that the chain is upside down - the part of the chain that is up by the seatstay up by the brake should be the bottom run of the chain. I bet if you could pull the bit that is through the rear derailleur straight between the jockey wheels, you could flip the whole thing over so the bottom run is on the bottom through the derailleur and the top run can run over the top of the cassette. It might be helpful to remove the front part of the chain from the front derailleur to give you more room to work.
