I'm also having the same problem. I downloaded, and played each episode, as I beat them. Today while playing episode 3 I got to the part where you're supposed to use the pencil on the engine instructions. Once I did that, my game glitched and I was unable to move my character, and the bottom right of my screen kept saying "B Back," as if I was still reading the engine instructions when I wasn't. The only way I am able to get out of this weird glitch is to click to use the buttons 6 and 5 alongside the train wall. Once I do that, and I move all the buttons in place, I am able to physically move my character and the "B back" command goes away. However, like everyone else, switch 9 to start the train isn't an option. I can use it BEFORE the notepad glitch, not after.
I think it's rather ridiculous that the only solution you're offering is for me to download episode 4 and 5, when X-Box specifically says "NO REFUNDS." So you're asking me to gamble $10, on a fix that may or may not work?!