Yes it's easy to replace PS1 with ERR, but you will have to "float" the tender shell (isolate it from its trucks) in order to use it as an antenna for the TMCC signal. (Lionel locos come from the factory with insulated handrails, which become the antenna.)
Or, you could get an MTH Z-4000 transformer which greatly "conditions" the chopped wave so that it approximates a sine wave. MTH wanted to be sure their transformer would run all of their trains! You can get one of the MRC "pure power" traditional transformers (although I personally would rather have a postwar Lionel transformer with some type of added protection.)
Finally you can use one of the modern "chopped" power supplies by making your own power conditioner. Across the output terminals you can add approximately 200 microfarads (200 uF) NON-POLAR capacitor. For saftey's sake it should be in a ventilated metal enclosure. This will condition the output waveform and allow your PS1 locos to come out of neutral. Your very early PS1s (pre-1995) may still have issues with the sounds but they will run.