..What would you use? I'm not 100% sold on these yet so if someone has a better idea or a better option please share.
So my conclusion from the on-going discussion is these 12V illuminated switches are really meant to switch 12V DC. Trying to mix AC and DC with isolated supplies is a non-starter (unless I've misunderstood Rob's idea). So taking rtr12's post about using relays in conjunction with these attractively priced switches, here's another option. Automotive switches with LEDs are about $1-2 on eBay, free-shipping, many styles, many LED colors. 12V relay modules are about $1/relay and come in modules of 1,2,4,8,16...
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So in the case of the 4 yard blocks, you need 4 illuminated switches, a 4-relay module, and a 12V DC wall-wart. Total cost about $10 on eBay (free shipping). So each 12V switch would only switch 12V DC and drive one channel of the relay module. A relay (10 Amp contacts) would switch the track voltage AC to the respective yard block.
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In some layouts, the control panel might be some distance from the controlled blocks. Note that with this configuration, the 12V DC control signals thru the toggle switches is low-current so the cabling can be "thin" wire. The AC power itself is high-current by placing the relay module near the controlled blocks, the amount of "thick" cable is minimized. In the non-relay method, "thick" cabling must be run from the control panel to the controlled blocks.