I ALWAYS use Lionel smoke fluid, as per Mike Reagan's recommendation, from the first time I opened the throttle. So clearly in my case that wasn't an issue. I purchased 4 NEW Legacy Engines in 2014, each from the same reliable toy train dealer, 3 steam, 1 diesel. The diesel, #38563 B&O sharknose RF16 AA, was the last purchase & the first to have the blinking light issue after 1 month. I doubt I had 2 hours running time on it. Under warranty, I shipped to Lionel & happily it returned repaired, in less than 2 weeks (faulty motors replaced). Happy ending, nope, 2 weeks later same problem again, really! Couldn't bother shipping it back again. Still no smoke, not happy. I haven't bought a Lionel engine since. I was told here on the forum, Lionel had a major problem with the motors from that period. Well, I'm waiting for the arrival of the new Legacy scale Polar Express. I hope it doesn't give me any problems but based on the feedback here, sadly, I doubt it.
I have over 20 MTH premier engines, some 15+ years old. The smoke units works EVERY time, even in engines I haven't run in years. I don't even add smoke fluid initially if the smoke comes on strong after the first lap or 2.
I really don't care why something works perfectly and why it doesn't, whatever manufacturer. The point is, if you pay $600 to $2000 for what is essentially a toy, (are we all nuts?) it should run perfectly for a reasonable amount of time, especially new out of the box! 2 hours is not a reasonable amount of time.
Of course, we are only going to hear about the problems here. Hardly anyone ever writes in, 300 hours later and still running strong!
Most of us love the multitude of bells, whistles and features available these days, and it comes at a price, a very high price! The price shouldn't be, expect it to brake very soon. There's a saying, "You get what you pay for". I guess 2 grand is still not enough.