Matt,Sounds strange. I can't imagine you're in the wrong tone mode, because if you were, the unit would either be just plain receiving ALL signals (with or without tone assigments on given channels) OR it would be receiving all signals and simultaneously actively searching for tones at each channel it stops for.
Perhaps it may be worth resetting the scanner (if you have frequency data, etc on your PC & can quickly restore the info to the scanner), re-programming it and then trying out the tone squelch function again.
Good luck.
-Dave
