To clarify, the scale locos just do ok on the 138 track? If I go full scale, I won't be concerned about accomodating hirail. Would I be better off with a lower rail height for operation?
Rail height has nothing to do with it. It's the turnouts where the issues lie. When I was with the CASG modular group, we used AM's code 148 rail and could run scale wheeled stuff on the outside loop because it had no trunouts. The inside loop had one turnout and was limited to HiRail or Flyer.
There is a mod for Fox Valley's HiRail turnouts I've attached below from the S Scale Facebook site that will allow both Scale and Hirail operation.
I haven't tried it, but reports are the mod works well.