At the time I got my first "collector series" set back in 1988, I only had DC transformers (MRC Trainpower 6200). I too ran into the "horn sounding all the time" issue, but seeing as the locomotive (Lionel Pullmor-motored SD40) didn't have a bell, I just threw the polarity switch and the loco continued to run as before with its E-unit, but without the horn (which wasn't that much of a loss).
So, what was I doing "wrong"?
You weren't doing anything wrong. The horn (which I don't like either) is triggered by a positive DC offset superimposed on the AC with the whistle button. If the "polarity" on the AC transformers with whistle control is backward, the horn doesn't work either, but the engine will still run.
The PullMor (universal) motors work by creating an electromagnet as opposed to using a permanent magnet They reverse reverse the phasing (polarity) of the electromagnet and the motor direction is reversed. That will happen under a DC or AC source. Lionel's are a little harder to modify internally because the locomotive frame is tied into the process and used as a "common" for the motor armatures as I recall. They do run smoother, quieter, and with better control under DC.
By the way, Frank Ellison's Delta Lines (revered by 2-railer and 3-railer alike) featured converted Lionel locomotives (running outside third rail) running on DC power.
