Jon,
You'd think that MTH would understand those limitations
What in the world are you taking about? There are no "limitations" - the engine is defective and should be replaced or returned to MTH for a warranty repair.
kbtt,
Is it a good idea (safe) to connect the AUX power after starting from the Z400 (on Fixed IN1) and all the locos are sitting in stealth mode?
No, it's probably not a good idea, since doing so swaps power for the TIU from Fixed #1 to the Aux. Power port. This could possibly cause a reboot of the TIU, which could mess with engines that are powered up.
Everyone else,
If you have an engine that exhibits this anomaly, which it most certainly should not, it is defective and is an indication that it should be repaired before it, possibly, becomes completely unable to process a watchdog signal at all.
Just my 2 cents...