Mach3 is all screwed up.  I'm running a Sherline 5400 CNC mill, and a XP Pro computer. When I move 2" according to the marks on the X axis, the DRO in Mach 3 reads 31.8700. Mach3 is set to Inch. I tried to cut a circle but it ended up being about 1/4" dia. instead of 2". Any idea's as to what setting may be screwed up?

You need to set up your steps per unit  for each axis.
Hood

What should they be?

Forgive me, I'm a newbie!

I dont know

It is dependant on your machines ballscrew pitch, motor type, drive type etc etc. Ther is however an easy way to do it, go to the settings page and click on the "set step per unit" button then follow the instructions for each axis. You will need some means of measuring the distance accurately, a dial gauge or vernier or similar should suffice.
Hood

Thank you. It appears to be working right now.