Sorry to hear you're having problems with your subscribers.
If someone is logged in to their WordPress account when they click that button, they will be automatically subscribed through their WordPress.com reader, rather than through email. I just tested subscribing in this way and was successful. It is possible to then set the reader to send you email updates whenever there is a new post by managing the reader settings at:
If someone without a WordPress account contacts you to say they tried to follow you through email but were unable to sign up, you can direct them to contact us directly. We can help get them signed up for your site.