Report Writer is putting the Notes field into the GROUP BY clause in the SQL query. This isn't your fault - it's just the way the availability report works.
The database 'text' type (Custom Property Editor refers to it as 'Memo') is nice because it's virtually unlimited in length, but it has these limitations in how you can query with it. Could you make do with a varchar field? (Custom Property Editor calls this 'Text' - confusing, I know.) You can set the length to something pretty big, like 500 characters. Then the reports would work for you.