Just as a follow up, the replacement speed controller fixed the issue.  So I had a bad power pack and speed controller out of the box.  With these replaced, the train works just fine.

Thanks to those who provided troubleshooting assistance and constructive comments. 

The new power pack is still reading 16V AC (and yes, it needs to be AC) at the output, so it is providing the correct voltage into the speed controller.  I have attached a picture showing the speed controller 16V AC input for reference.  The speed controller is not providing the correct DC voltage at it's output.  The track is not shorted, as I have checked that as well.

So in other words, I am saying that both the original power pack and speed controller were defective.  The hobby shop replaced the power pack, but I still have a defective speed controller.

I have worked on electronics professionally for over 20 years, so I know the difference between AC and DC, and use a DMM on a daily basis.  Hopefully I have cleared up the confusion.

(looking at this picture, I am just using the 16V AC input from the power pack, and the track output.  I am not using the accessory terminals.)

Well... I drove all the way out there to get things resolved.  The gentleman was very nice, and tested to make sure the engine was OK.  It was.  I pointed out that the power pack was supplying 22.4V AC instead of 16V AC, and the speed controller was reading just over 30V DC at the output.  He tested the power pack, and verified that issue.  He replaced the power pack, and tested to make sure it was delivering the correct 16V AC. 

I drove home, excited about finally getting to run my train.  I hooked everything back up, and I am still having an issue with the speed controller.  By the time I drive back out there, I will have spent more in gas and tolls than the cost of buying a controller online.  So I bought one online, and will just box up my train set until it arrives. 

I am not too thrilled that there were 2 bad components in my brand new train set... but It is just my bad luck.  There were 2 sets at the store, and I picked the one with the nicer looking box.  Guess I chose wrong!  LOL

Hello Everyone, thanks for the responses!  Yes, I am sure everything was assembled correctly.  I read the instructions as I went (even though it was easy to assemble), just in case there was any break-in instructions, or anything like that. 

Just as an update, I called the hobby shop, and they asked me to bring in the power pack, speed controller, wiring, and engine.  I will be taking it in tomorrow, and will be sure to post up what they find.  The gentleman I spoke with was very nice, and assured me that they could resolve the issue.  It sounds like I should have a working setup by tomorrow night!

Thank you very much for the information Joe!  Looks like I will have to call hobby town tomorrow, and see what needs to be done.  Guess I wont be playing with my train anymore today 

Thanks again, I really appreciate the info!

Merry Christmas everyone!  A few days ago, I decided to buy myself an early Christmas present.  I picked up a Bachmann Chattanooga HO scale train set from Hobby Town.  Once I got it together, I wanted to start it off slowly.  As soon as I turned on the speed controller, the train started spinning it's wheels, and took off.  Adjusting from the slow to fast setting changes the speed very little.  I can detect a slight change in the tone of the engine, but cannot visibly see a difference.  After watching videos and seeing different results online, I decided to check the voltage that it is supplying to the track.  At the slowest setting, the track is getting 30.22V.  At the high setting, it is getting 30.57V. 

What voltages should I expect to see at either end of the spectrum?  Is it possible that it was just wired incorrectly?  Any input would be greatly appreciated.  Thanks!