Yes absolutely you were entirely way too honest, of course you don't want to out-rite/flat-out lie to them...better to just bend the truth a little bit and embellish some. lol
I do agree 100% that your very first mistake was waiting for them to call you. You should never...ever...wait for them to call you (alot of them won't). You should have waited 10 mins (at most) after hitting that submit button and then called them.
I also agree that the right answer for where you get your traffic: is definitely PPC! Most if not all CPA Networks want to hear that you get your traffic thru PPC and other paid traffic sources, and I daresay that you telling them you get all your traffic organically, that was I'm sure along with not calling them was another big, big reason you weren't accepted.
Good luck man, there are plenty of CPA Networks out there and I'd even bet you could get in with them if you were to call them on the phone and explain the situation. You could say something like you didn't list PPC because you've only just recently got into it or something like that. (you could easily think of something clever to say)
For future reference man, when they ask where you get your traffic...you say PPC and Media Buys! and any other paid traffic sources (PAID TRAFFIC IS KEY!) and always, always call them after you submit that application!
Good luck man