Blinking lights

From the back of your owners manual:

Locomotive diagnostics: 

Your locomotive includes built-in diagnostics to monitor the condition of the main drive motor and smoke system. If a problem is detected, the locomotive's cab light will blink a diagnostic code. If you see the light inside the cab flashing, press RESET (for LEGACY operation), 0 (for TMCC operation), or DIRECTION/power interruption (for conventional operation to attempt to clear the problem.

The locomotive will immediately check itself again. If the problem persists, the cab light will blink the code again. Note that smoke-related errors can be reset a maximum of three times. On the third try, if the problem still persists, the smoke unit will be shut down.

After reaching the three-cycle limit, the power must be cycled (turn off and back on) and then you may try to reset three more times. If the problem persists, it must be returned to a local Factory Trained Authorized Lionel Service Station or contact Lionel Customer Service for repair. Turning the smoke unit switch to the off position will disable diagnostic checks of the smoke system.

Number of Blinks Diagnostic Code Description:

1 Main drive motor stalled.

2 Smoke 1 element problem.

3 Smoke 1 fan problem.

Thank you I will check it out tonight.

I hate that feature!

With all the lights blinking, I'd be more likely to suspect something like a short circuit in the smoke circuitry, or perhaps a board failure.  The diagnostic ONLY blinks the cab light.