Brand new Legacy engine will only start up in conventional

I'd take it back to the dealer and let them sort it out with Lionel.

No ideas John? I did have this happen once before and my recollection is that I did return the engine to the dealer however my son Steven is under the impression that this is a relatively common problem and easy to fix. It's almost like the engine is locked into neutral. Any other ideas from anybody else before I spend 20 bucks shipping this thing back and waiting a month to get it returned after I've paid for it in full!

I have ideas, but anything I'd suggest probably involves popping the top.  For the newer locomotives with the RCMC and TMCC receiver stack, the TMCC receiver has been known to become unseated from it's socket on the RCMC.  That will cause the symptoms you see.  This is the RCMC and the circled small board is the TMCC receiver.  It's perched on some fairly delicate machine pins that go into mating sockets on the RCMC main board.  It can some loose, and I've also had to repair a broken pin on a couple of these TMCC receivers.  If you do try to reseat it, you have to VERY CAREFULLY wiggle it out of the socket, check all the pins, and then carefully align it with the sockets and gently press it into place.

Good info, thanks.

if it is under warranty I would not open it up.

I have a had the receiver board literally dislodge itself from the RCMC board. Not sure how it did that. But I was able to carefully press it back on and all was good.

Thanks to everybody for their input. It's going back to the dealer.