ROG67,
I just got done building my controller boxes (using the 126 and ESS as well), but haven't tried to test it with MACH 4 yet. So I won't be able to help with that portion of your build, but I can answer a couple of your questions.
You should use a shielded cable to connect your computer and ESS. The shielding will ground the ESS to the computer's ground. The 126 has two grounds. The PCgnd is connected to the computer's ground (and the ESS and outputs) and should be separated from the other ground labeled GND which you'll see on your inputs.
If you have a multimeter, set it to the ohms setting and test the PCgnd to the GND, if your multimeter does not read 0L or something else to indicate infinite resistance, then you have a short between them and this can cause noise which could interfere with the CNC's control signals. I believe I read somewhere on this forum that the GND should also be grounded to you case, but I would suggest you do some research before doing so.
Have you tried testing it without the E/S connected? The E/S must be a NC (normally closed) switch, since the 126 will not work without the E/S port being grounded. The 126 should have arrived with a jumper between the E/S port and GND. A good practice is to test with the least number of variables.
Does your homing switches have any indicator lights? You can use them to test each switch seperately to verify they are connected and functional. The 126 will also have an led indicator next to the input port the switch is connected to and will light up when the homing sensor is activated.
I would test your hardware before trying to connect it to the computer and using the MACH 4 software. From what I understand, the MACH 4 software can be a trial, especially when you are getting started. There is a whole section of the forum dedicated to just MACH 4.
For some odd reason, the forum hasn't had a whole lot of activity and the owners are not as responsive as we would like, but I have seen them answer questions here and there. I would imagine they see a lot of the same questions and probably expect us to do more searching on our own.
I hope this helps and best of luck to you.