Ted, best I can tell from the drawing you've got it wired correct. The banana jacks both go to the center terminals of the switch just as you have them drawn in. Both of the DC (+ and -) both will go to the top two terminals, just as you've drawn them. Both of the AC wires will go to the bottom two terminals.
You've also got the red wiring going to the positive (+) terminal? I don't see which of them is marked + and which is negative - perhaps they're not marked because it depends on position of a switch on front panel? Doesn't matter, I'd keep the red wires to positive side (just because red is normally positive in the DC world). Also, be sure the positive (red) wire is going to the blade, with the negative (black) going to the marking tool.
Yes, you'll find the max voltage will work best. Once you're working with stencils you might like to cut back to 5 to 10 second or so marks, but use several of them. This prevents the stencil from heating up too much (excessive heat will shorten a stencils life), and lifting marking tool releases any gas that's built up between blade and tool. You'll get a faster, cleaner mark with several shorter marks, than with just a couple long marks.
As ya'll have seen, there's nothing to building a electro-etch power supply. Simple, easy, and cheap. Those train transformers are the way to go for sure. I hadn't thought of them before. I usually have an old low voltage transformer laying around in junk box, and rest of parts are in parts bin for sure.
Ken H>