I'm sorry to answer my own post here but I wanted to update with the solution I found...
I had to adjust my "Threshold" and then it started working.
Ok, I have found a quirk that I wanted to ask about now that is really a show-stopper for me.
When I am in FSX and Freetrack is the active program in Windows, everything works really great.....but as soon as I switch to FSX so that I can hear the sounds and work the FSX menus etc., the view starts to act all funky.
Do I NEED to use LED lights for this freetrack to work ok? I am just using my TrackIR hat with the silver dot on it with Freetrack in that "IR Illumination" mode....
If I could get Freetrack to work in the sim as it does when it is the active program, I'd be VERY happy! It appears to be possible, I'm just missing something it seems.