Small flywheels aren't much better than no flywheel at all. My MTH 20-3020 doesn't coast worth a darn, really most of my PS1s don't. A flywheel's diameter, and especially its mass at the rim is key to its ability to store energy. High RPMs help a lot too. If he does go with a smaller flywheel, he might be a customer for the super-capacitor keep alive discussed on the other thread!
New theory: The motor bearing on the flywheel side has worn (from the action of the unbalanced flywheel, and lack of lubrication), and that's much of what you're hearing. Thus Joe should try another high-speed Mabuchi motor. For all the time invested so far, and especially if he has more Williams locos in his collection, I would want to have a spare lying around.
By the way Joe, I see that green plaid lining the firebox and crown sheet 
. Nice try but double-sided foam tape isn't DynaXorb! Don't give up!!
