Well if you have a MPG on the xbox I dont think you will need the MPG set up in Ports and Pins, Encoders page. Could be wrong but just disable it and see if al is still fine.
Hood

Ok so I changed the setting and now I can see backlash working correctly but the other behaviour is still the same.  So then I started to think its a condition of velocity and or mechanical.  So I looked closer at the dial while Im jogging in .01 single step mode.  What I did was to move in .01 increments for a total of.1mm and low and behold the dial only moves .06mm that's why when I press goto the dial seems to move beyond the original value set on my dial gauge.  The goto 0 is moving allot faster up and down and this engages the gear drive fully while my small incremental changes don't(at least thats what I think).  Doing such movement on my x or y is fine, I can see the dial gauge move  properly and  setting soft  0 returns it to 0 the first time.

So now I guess I have to look at the mechanical aspects of my z and I'm a little disappointed that my machine is being a bit tricky, has any one had such behavior before mechanically? The machines motors are operated by steppers and a 2:1 belt driveand has ball screws all all 3 axis. I'm not sure the best place to start.  I keep it well lubed and clean haven't had any crashes and only cut 2007 alu with it so I be surprised if bearings have allot of wear, but I'm still pretty new at this all.

What is the m650 macro you have running doing?
Hood

Not sure hood

can you attach it and maybe I can figure it out.
Hood

I had a look in my mach3 folders and couldnt find the g650 macro, I can see it refered to in the XML but Im guessing who ever wrote it didnt include it.

Its m650 and will, or should, be in the macro folder of the profile you are using and will be called m650.m1s

Hood

Sorry hood putting g650 was just a typo..I had looked for the m650.m1s and its not there

Ok well maybe best to delete it from the init string if its not being used. Probably wont do any harm but its just another thing for Mach to look for and if its not there its just wasting resources. On the grand scale of things it would likely be a very tiny amount but still if its not needed then dont waste is my philosophy .
Hood

Hood thanks very much in helping work through my machine errors.  Since I was able to eliminate any soft errors I focused the rest of the day to mechanical and in the end a pull down of the Z and reassembly with fresh lube and re tightening of the belt fixed my problem within about .005mm which I'm able to live with. Now to cut some stuff again yay!