Hi John,
The (not terribly detailed) schematic does show a whole-system-shutdown switch in the Forward/Reverse/Stop block, so I suspect that what you're seeing is the correct behavior.
I would expect it to not shut down if you go Forward - off - Forward, but to shut down completely and require a restart if you go Forward - (past) off - Reverse (or vice versa). The reason for that is because reversing single-phase motors isn't as easy as reversing three-phase motors, and you really don't want to throw the motor into reverse while it's still spinning forwards. Disabling the system and requiring a restart between them seems like a reasonable safety approach.
If it shuts the system completely down every time you move to off from Forward, even when you don't try to go past off to Reverse, I think that would be maddening. Of course I also think box cutters that require me to hold the blade open to use them are maddening, and lawn tractors that shut off every time I go over a bump, and...
With respect to your turning finish, please don't take this the wrong way, but --- from your questions it sounds like you really don't know much about the carbide tooling you used, the steel you were turning, etc. Given that, it's not terribly surprising your surface finish is less than beautiful. Even people who know exactly what they should be, and are doing, sometimes get crap finishes.
From the limited photos, it looks to me like that might be stainless you were turning? Without a perfect setup stainless usually turns about as nicely as a pink-pearl pencil eraser.
If that's not stainless, my first bet would be that your tool height was off, or something wasn't adequately rigid, and you chipped your tool almost immediately. A teensy chip on the cutting edge will often give you a torn-looking finish like that on mild steel.
Best of luck!
Will