Your 1654 was produced in 1946 or 47. 
They're commonly called a "Scout",  but the Scout locomotive was not introduced until 1948.

Your 5121 & 22 switches are O27 switches, here's the manual for them:

http://www.lionel.com/media/servicedocuments/70-5121-250.pdf
These are supposed to be "non-derailing" switches.

I'm going out on a limb and guessing that the problem is
that your switches may not be opening or closing completely.
Are you certain they're getting the correct 8 - 14 Volts AC?

Does your 1654 derail in both directions(CW/CCW)?

Does it derail at the Points or another area of the switch?

Have you checked the gauge of your wheels, both pilot & drive wheels?
Are any of the drive wheels bent?

Dave