I started this airlayer about three weeks ago (I live in a very moderate climate). Instead of roots, It looks as if new leaves are growing inside the spaghum moss. Does this indicate that I'm doing something wrong. I should add that I've had awful luck with air layers in the past.

Could be your sphagnum moss is greening up and growing.  If you buy the good stuff (sphagnum) for layering it will sometimes do this.  Can't  tell from the pic but this could be the case.

Hi Jeff. It looks like the leaves on your tree have turned brown, a natural occurrence in the fall in your area, I'm sure. The energy, (food), that a tree uses to grow new roots comes from photosynthesis of green leaves. I'm thinking maybe you should try again in late spring, after the new leaves have hardened off.  It's all about timing.  Good luck, Larry