Regarding why the mind reading machine doesn't work:

1. The conductive differences between the layers of bone and flesh and the air allow not very much signal to radiate out from the head.
2. Whatever is detectable is the surface, so whatever is going on underneath gets all mixed together. It would be like trying to read every page of a transparent book at once.
3. Decoding how the brain works is a problem even apart from that. How for instance would you recognize the radio equivalent of a thought of a particular color?
4. Yeah, why would you bother? It would be like trying to see up someone's skirt but worse.

Telepathy works on completely different principles. Yes it is possible, and it doesn't depend on reading subtle physical cues, or extrapolating from what is known about a person, even though people do those things too. Distance isn't an obstacle at all. It is mostly impressions of things like feelings and motives, but can be remarkably detailed, with specific information that's metaphorically related to the subtler stuff. I doubt anyone can control it well enough to prove it easily though, and it doesn't benefit anyone to fund a proper study. Most of the time it also requires a degree of openness that few people are comfortable with. I think that people who are really interested should explore it and decide for themselves, and people who aren't really interested are better off just leaving it alone.