Track problems -- short circuit?

[Charlie B]

From what I see that switch has both wires running to all 3 switches so you have a total shut off to each track/block so it is possible that the #3 position has shorted internally which would cause the transformer to heat up. By changing the wires to position #2 you have eliminated the possibility of a short elsewhere because now the track in question runs fine so it is almost certain the switch is bad. A new switch should  solve the problem 
Charlie