I use my DCS Commander to Factory Reset my PS3 engines routinely. I do this so I can use them on a separate loop run by the DCS Remote Commander.
Do you have only the one engine loaded in the DCS Commander? I think I ran across a similar problem when first starting out with the DCS Commander. This is from the MTH Manual:
"RESET This button works
only if there is at least one DCS
engine added to the DCS
Commander. Pressing and holding
this button for 3 seconds will flash
the FEATURE icon. Subsequent
presses of the RESET button will
flash FACTORY and SYSTEM. The
th 4 press of the RESET button will
return you to a normal operating
screen on the LCD.
If I recall correctly, I couldn't get the 'Factory' option (or 'Feature' for that matter) to come up when I first placed an engine on the track. Just like you I only got 'System' and a subsequent press of Reset exited the routine.
I had to add that engine or have an additional engine added first, then I could access all three options on the one I was trying to reset.
Also have you tried adding it back first after it's been "lost" then using the Reset function. Perhaps deleting it, then adding it, then trying Reset. Just spit balling.
Good luck!
Robert