I have Mach3 running a plasma table with a floating head mounted torch. The system works fine.
   I am in the process of adding a DIY THC and doing some testing. Since I'm doing the testing with the torch off, an external supply is providing the torch voltage signal to my THC unit. My THC has been bench tested and appears to be correctly wired into Mach 3 and working in that I can see the Torch UP and Torch DOWN leds operate on the diagnostics screen as the simulated plasma voltage changes. Since the torch is off for testing, the THC On signal is hardwired to ground (active low) and the led for THC On lights in the diagnostic screen. I've examined various videos re getting Mach3 set up for THC and I think I've done what's required. However when I run a simple tool path, even though the UP/DOWN leds change as the simulated plasma voltage changes, I get no response on the Z axis.
   Would the hardwired THC On signal being asserted before the Torch On signal is produced for piercing be preventing the THC from working?

Make sure that Mach3 is properly licensed and that THC is enabled.  You should be able to see THC action in test mode.

Arturo Duncan
https://cnc4pc.com

Yes, my Mach3 is licensed. But you didn't address my question:
Would the hardwired THC On signal being asserted before the Torch On signal is produced for piercing be preventing the THC from working?

Please refer to the instructions from the vendor or the unit you are using.   Normally it should not be an issue, but maybe there may be a macro or something that may change this.
But why do you want to have the ARC ON if it is not?  There is a reason for using the ARC signal to start the THC action.

Arturo Duncan
https://cnc4pc.com

  This is a DIY THC that I built based on the unit designed by Swolebro, so there is no Vendor instructions to refer to. I'm doing the THC testing with the plasma torch not running just to try save wear and tear on the consumables. So, the torch voltage signal is coming from an external supply. Yesterday I verified that when in THC mode (led next to THC button is green), the tool path won't execute until Torch On is asserted. If Torch On is hardwired asserted the tool path executes fine. Also yesterday I found that the number shown in the "Curr." window will tick up negatively when the Torch Down signal is present, during tool path execution. This would indicate that some portion of the Mach3 THC function is executing. However, there is still no correction to the Z position regardless of a Torch Up or Torch Down signal.
   Any suggestions as to what I'm doing wrong, or not doing?

Maybe you can use this instructions and files:
https://cnc4pc.com/blog/post/manual-mach3-configuration-using-thc-1-with-the-ethernet-smooth-stepper-with-macro

Arturo Duncan
https://cnc4pc.com

The instructions in that link are basically the same as what I've been doing. So Thanks for that but I'm no further ahead. It seems like THC is still disabled even though my copy is licensed. I don't know what else to try in Mach3 and am thinking now I should try Mach4. Apparently the demo version will work for 5 to 10 minutes without licensing. At this point I don't know what else to try.

If you are using a USB motion controller, That is almost certainly the problem. Many many Cheep USB controllers do not communicate properly with mach3 Torch Height control.
This problem, was, for me, so utterly unassailable that I was forced to revert to a 32 bit parallel interface.
And send a lot of subpar motion control boards to the "almost ran" box

Its the last thing you want to hear after setting it all up, but unfortunately it is a known issue that has not been resolved.

Cards to avoid include:(but are most certainly not limited to)
-Any Chinese knock-off of UC100 or UC300 controllers
-those cute, cheep little red boards that work fine for simple routers.

Also, many fraudulent, modified versions of mach 3 are out there, many come for free with control boards. These are almost never legitimate mach3 copies and are prone to an array of bizarre and inexplicable problems.

Thanks for taking the time to reply re my issue Oliver. But first: 1) My copy of Mach3 is legit. 2) My controller is Ethernet (Warp9)
The solution to my issue was not Mach4, it was the THC Max and THC Min default values. Now this is a while back so memory is a little fuzzy, but I think the default values were in mm. When I changed the units to reasonable inch values Mach3 responded correctly to Torch Up and Torch Down signals from the torch height control board. So the problem I first posted about is solved.

I too have a couple of those red boards that are destined for the scrap.

The THC on my plasma table is not yet working. Although my THC board works fine when testing by faking the torch voltage signal, when the actual torch voltage signal is used my THC unit stops working. So, I have a different issue now and have set the THC board aside to let my frustration cool off.

I can certainly relate. Torch Height control is not one of Mach3s easiest things to set up.
Presumably, you have edited the XML to change THC max and min, as default, I seem to remember they are +50 and -3 respectively, which made them problematic for anyone using a G31 probe sequence, which is the favoured probing method used by most post processors. I set mine to +100 and -100.

The red boards are perfectly designed for 6040 style chinese routers, they actually perform well in that role.  But only that role.

I tried to do exactly what Swolebro did, from scratch. It worked, perfectly.... in a test rig. Had a DRO and the works.
Mach 3 had other ideas.
I am now back to using my Proma150THC, a cheep, DIN rail mounted solution that has time and again proven itself to be the most reliable option at hand.
They recently brought out a standalone version called THC150SD, which directly controls the Z axis driver, eliminating any need to even communicate torch height control with Mach3 whatsoever. Quite impressive and not a terrible price either. but very rudimentary.