I previously read the owners' manual for the '060' switches that you referenced above, and the reference to not using terminal #1 is not explained.

I believe the reference to not using terminal #1 is meant IF the SC-2 is powered by the wallpack. Hooking a switch to terminal #1 with the SC-2 powered by the wallpack will probably damage either the SC-2 or the switch, or possibly both.

Page 22 of the SC-2 manual explains how to operate up to 6 switches.

If you are unsure of this, please feel free to call Lionel customer service and get an answer directly from them, along with their explanation. Kindly post their response here as an education to others who may have the same question.

Larry