Look, there's nothing mysterious going on here. The guys have you covered. It has to be one of the things they suggest. Yet, you keep dismissing everyone's suggestions!
If I were these guys, this is where I'd say, "IF you're such a %$#@ expert on the subject, why are you here asking questions?!?!" But, we're all nice guys and wouldn't say something like that.
You have to brake much harder when towing, you experience pedal fade, and you smell burning brakes when you stop. That is CLEAR indication that the trailer brakes are not working properly.
If you adjust the trailer brakes to be more aggressive, WHEN do they lock up?
Do they lock up when you use the manual slider?
Do they lock up when you push the brake pedal?
Can you tell if the brake controller is working when you press the pedal?
Maybe the brake controller is not receiving the signal from the brake pedal, and is not activating the trailer brakes during normal stopping.