Is it possible you have a 12 year old bike that's never been ridden?

That looks to me like whoever put the shift housing ferrel on did a lousy job. In the normal course of things that would have been done at the factory. I'd think that a mistake like that would have been caught when the bike was packed into the box for shipping or certainly when the bike was assembled at the dealers.

A couple feet of shift cable housing and a ferrel end should fix it.