It absolutely uses the house wiring (earth ground) as one half of the signal. The other half is the U terminal on the Legacy base connected to the outer rail. The antenna on the engines (inside the shell on plastic, the handrails on Diecast steamers) picks up the earth ground signal. The U terminal signal is picked up through the wheels. A time tested way to improve the Legacy signal to to run a ground wire from a grounded outlet above the problematic track. I had a long email conversation with a Lionel Sr Electronics Engineer (the guy who designed the latest radio board in Legacy engines) and he gave us lots of tips to improve the signal. At the NJ Hi-Railers we've run ground wires strung on telephone poles above the problem areas and it's made a world of difference. One of us (Bob DeGuarde) using info he found on this forum has built a TMCC signal strength meter car and we see readings in the 20s in bad spots and then after a ground is put into place we frequently see mid to high 40s.
I attached some info about TMCC Hints and Tips and the Signal Strength Car