3rd time's a charm...
I realized what happened last time. Even though I taped up the rest of the frame, I had missed the area directly under the decoder. In retrospect, it's a pretty obvious thing, but I somehow I missed it.
I tried again tonight with a fresh decoder and it worked!
So...
The good news: if you insulate the entire damn mechanism, including replacing the stock electrical tape around the wires and motor contacts, it'll work.
The bad news: because the warranty period has run out, I'm out a decoder.
I'm not sure who I'm annoyed at with this, but I'm definitely annoyed:
Walthers, who made the mechanisms that weren't properly insulated in the first place?
MTL, who actually sold the engines, even though they're aware there's an issue with them?
Digitrax, who didn't mention any of this in the instructions, and didn't manufacture a more sturdy decoder that could either handle some incidental contact, or was wrapped in protective insulation?
Me, who assumed everyone else who made the stuff I was assembling had thought through this stuff already.