It sounds like Fixed 1 is compromised, but you'll know for sure when you try to re-hook it up. There are a variety of things that could be the problem and some are easier than others to fix, depending on your skill and soldering level. Being a tinkerer, I'd take it apart and try to locate the source of the problem, but that's just me.
For the most part, I'd probably leave it alone. With a 4' X 8' layout, the Z-500 and one fixed output (Fixed 2) should be sufficient for your current needs. If you decide to expand and stay with command control, you can always upgrade your transformer to something with more power and/or convert one or both of the TIU's variable channels to a fixed output should you decide to add more tracks/lines.
Glad it worked out.