Guys... First of all... Thank you all so very much for ALL your input. The wealth of knowledge on the forum is fantastic.
Gregg... We'll look into the process of isolating the hot wire, however, I think Carl has come up with answers that point to the reason we're having problems.. As you read the comments below, I think the "solution" can be reached....
Galon... We were concerned with that as well and have isolated all the "track joints" at the "X" spots with a thin plastic separator and there is no contact at the rail ends. We even separated the track pieces to make sure and with a visible gap of 1/4 inch, there is still contact.
Carl...... You've really pointed out some issues that we are not aware of..
Now let's discuss operation. When you have a variable channel on the TIU, why do you want to use the controller handle for conventional train operation? The remote will do that by addressing the variable channel.
We are not using the handheld remote in this operation.. According to the APP in the iPhone, once the upgraded APP is functional, we will be able to switch back and forth from DCS to conventional on the smart device. As you know, the upgraded APP for the WIU WiFi operation hasn't been released as it hasn't been fully developed. The folks at MTH Customer Service have been so very prompt in sharing that. They "expect" the upgrade to be released in May or so. Defining words are "or so". 
MTH recommends using the adapter cables and connecting the Z-1000 brick directly to the TIU. This is because the hot and common of the jack coming out of the brick are reversed. the controller or the adapter cable corrects this.
This we were not aware of and quite possibly, probably and could most certainly be our problem. We do have that adapter cable and will certainly make the corrections in the wiring or could we just switch the input wires to the DPDT Power Routing switch as in this diagram.. I did not include it in the original track diagram and should have. My Bad!!!!!
They also recommend to not power the TIU via the MTH controller.
Yes, that we are not doing... Only from the Z1000 Brick, but if the polarity is reversed, that certainly could be (is) the problem..
We'll go back to the engineering department, wake up the nerd, feed him Mountain Dew Extra, a bag of Doritos, a couple of cookies and see what happens...
Again... Thanks so very much, guys... You've done good... 
Real good..
