PHP returning JSON to JQUERY AJAX CALL

I am still struggling to get my head around the ins and out of JQUERY, AJAX and PHP.

I can now call the PHP OK, process the form elements and send an email, but I am not handling the return to the AJAX. I am always getting the error: selector activated and when I try to list the supposed JSON returned, I get info, that is obviously wrong.

PHP with supposed JSON return

<?php

touch('phpTouch.txt');
// process email
$email=1;
if ($email) {
    $value = array('return' => 1, 'msg1' => 'Message sent OK, we will be in touch ASAP');
} else {
    $value = array('return' => 0, 'msg1' => 'Message Failed, please try later');
}
$output = $json->encode($value);
echo $output;

?>

Javascript and AJAX

function submitForm(evt) {
    $('#msgid').html('<h1>Submitting Form (External Routine)</h1>');
    if ($('#formEnquiry').valid() ) {
        $("#msgid").append("<h1>(Outside Ready) VALIDATED send to PHP</h1>");
            $.ajax({
            url: "ContactFormProcess3.php",
            type: "POST",
            data: $('#formEnquiry').serialize(),
            dataType: "json",
            success: function (data) {
                alert("SUCCESS:");
                for(var key in data) {
                    $('#msgid').append(key);
                    $('#msgid').append('=' + data[key] + '<br />');
                }
            },
            error: function (data) {
                alert("ERROR: ");
                for(var key in data) {
                    $('#msgid').append(key);
                    $('#msgid').append('=' + data[key] + '<br />');
                }
            }
        });
    } else {
        $('#msgid').append('<h1>(Outside Ready) NOT VALIDATED</h1>');
    }
    evt.preventDefault();
};

Listing of supposed JSON data

readyState=4
setRequestHeader=function (a,b){if(!s){var c=a.to