The difference between connecting different transformer outputs together and connecting together blocks controlled by rheostats from a single transformer output is that, when the train passes over or stops over the gap, it is merely shorting out the rheostat, which is just a passive resistor and completely unharmed by this. The same is true when you use diodes for voltage dropping. They are also passive and not harmed by shorting them out.
When you tie two outputs from the same transformer together, a fault current will flow. It doesn't flow in the transformer common or ground at all. Since most postwar transformers have their single circuit breaker in series with the common, the fault current can never trip the breaker. This can damage even the ruggedest postwar transformer. I have some type-Z transformers that attest to it. They are burned in a distinct section in the middle of the secondary winding, the part between the roller positions of the two outputs that must have been shorted together--probably the very last time the transformers were used!
Another consideration is that, even if the short circuit across the gap is brief, it probably will produce a voltage spike when the magnetic field that it produces collapses, as with any short circuit on the output of an inductive source like a transformer. Voltage spikes have been known to damage modern locomotives.
Bob Nelson
Hard on the transformer from the heating of the fault current, hard on a modern train from the voltage spikes, hard on any train from the fault current flowing through the locomotive or car wiring from pickup to pickup and from the arcing.
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