I use an airbrush for such work, so can only comment on what works with that method.
If you're applying a gloss for decaling, apply it to the entire painted shell, and let it fully cure before decaling.
I like to cut the decals as close to the useable image as possible, even for Microscale decals with their "tapered borders". To do so, I cut the individual pieces from the sheet with space around them, then, working on a hard surface (sheet of glass), use a sharp blade to snick-off the blank paper around the images as close as is possible. By cutting straight down with the blade, you avoid the raised edge which a slicing motion creates - this will help the decal's edges to better lie flat when applied. Sharpen the blade often as you work.
You may or may not wish to use Microset when applying the decals - I usually use only distilled water, until the decals are properly placed - you can re-wet as often as is necessary to achieve the desired placement..
Once the decals are in place and dry, add setting solution as required to get the decals to lie as snugly to the surface as possible. I usually start with Microset, then after that initial application, switch to Walthers Solvaset (you can dilute it with distilled water if you find it too strong for a particular application).
When the decals are fully dried, apply another spray of clear gloss: the reason for this is because the gloss of the decals is seldom identical to the gloss of the surface on which they were applied - skipping this may make the decaled area more noticeable. Once that has cured, spray the entire body shell with a clear finish of your choice: this can be difficult with spray cans, as not only do they usually put out more paint than an airbrush, but they're also limited in the finishes available. With an airbrush, you can spray gloss, any type of semi-gloss, from really pretty shiny to almost flat, and, of course, dead flat. What you choose should be in line with the look you want on the finished locomotives.
Keep in mind that on a real locomotive, the just-painted gloss will dull over time, but dirt (weathering) starts out on that glossy surface. If you're planning on heavily-weathered locomotives, do this clear coat in flat, but otherwise a low-sheen semi-gloss would likely look better for a lightly weathered locomotive.
Your problem on the test loco could be that the previous paint was not fully cured and the paint being applied may not have been compatible with it. Dullcote is lacquer-based and may react with water-based paints if they're not fully cured. Again, we get back to the airbrush/spray can issue, where the latter often puts down more paint than necessary, with unfortunate consequences. I have airbrushed Dullcote and very heavily-thinned lacquer-based weathering colours over Tamiya paint without problems, but would suggest that your clear finishes be from the same manufacturer as the paint you use.
Wayne