Think I figured half of it out guys. On the breadboard, I put a diode between chip grounds and real grounds.

Why????

If you had provided a schematic of your actual setup, we could have identified that as being a potential issue.

The language of electronics is schematics. You need to learn how to start communicating using them.

EDIT: I didn't see that you had posted a sketch of how you had things hooked up. Sorry. Although I don't see any diodes between grounds in that schematic.

Also, I put a button switch at input A and B. Seems to work perfect with the LEDs now. However, I noticed that with the buttons, I have a voltage at both outputs around 200mv... guessing this is just due to the fact that the buttons are cheap and may be leaking some voltage...?

What kind of switch (SPSP, SPDT)?

Hooked up how?

Again, a schematic would communicate almost everything that might be needed.

 

WHAT IS A MAGNETIC ISOLATOR???? I am familiar with isolation transformers that are often used to avoid shock hazards. But usually they are not used for digital switching signals. So who makes "magnetic isolators? and how are they described??

It's basically an alternative to opto-isolators that overcome some of their drawbacks.

Essentially, one side transmits a pulse through a transformer each time the input signal changes state. The polarity of the pulse depends on the direction of the transition. To provide DC stability, if there are no transitions within a particular amount of time, the transmitter side produces one. The receiver side is therefore looking for a pulse at a maximum period and if it doesn't see one it takes the output to a default level.

Oh, and Analog Devices makes them. Possibly others, as well.

 

I understand the importance of schematics now... I'll make sure to include them from the very start next time. I am using a tactile button switch... I believe, pulled them out of a digital thermostat control unit. It has four terminals, I have ground connected to the NC, and the voltage at NO. I folded the fourth leg and made sure each of the 3 remaining legs were in different rows of bread board. So, the continuity is, 2 2 or 4.... I guess that's the problem. I'm goanna order some real switches.

 

It's basically an alternative to opto-isolators that overcome some of their drawbacks.

Essentially, one side transmits a pulse through a transformer each time the input signal changes state. The polarity of the pulse depends on the direction of the transition. To provide DC stability, if there are no transitions within a particular amount of time, the transmitter side produces one. The receiver side is therefore looking for a pulse at a maximum period and if it doesn't see one it takes the output to a default level.

Oh, and Analog Devices makes them. Possibly others, as well.

OK, That seems similar to an ISOLATION AMPLIFIER, which I am familiar with. Just attaching a different name to an existing technology