It was text that was converted to outlines. It some times works and some times doesn't. As you can see, the different stroke options are selectable, and when you click it it looks like it was just selected but only for like a second and then it changes back to center align.
Interesting, I didn't notice it said that in appearance. As you can see the line window suggest it's on the center, I guess the problem is that I can't change the alignment at all. It is stuck on that.
Like Monika says, your artwork looks as you would expect with those settings.
But if you still have trouble with aligning strokes to anything other than centre, try doing Pathfinder (panel) Unite (+Apply) to the letter forms before you adjust the stroke.
This ensures that all paths are closed.
It sometimes (but rarely) happens that Create Outlines produces open paths.
I've had this same thing happen to me at seemingly random occasions, with shape objects as simple as a rectangle. From the default center-align, it will sometimes not let me select inside-align although it's clearly an available option. Just now, the problem was solved by selecting the outside-align (which it allowed for no aparent reason), and then selecting the inside-align, which magically worked. My guess is that it has to be a bug with the program, as I made no change to the shape object.