Hi Charles,
Replacing the resolvers with encoders shouldn't have had any effect on the Drives. Something else must have changed. I would take a step back, electrically disconnect Kanalog and the Encoders, and go back to to 1.5V battery test until that works.
Maybe you have the X tach crossed to the Z Amplifier and vice versa?
You might disconnect the tachs and short the tach inputs and reference inputs to force 0V to the drives to see how it behaves. I would expect no or minimal motor drive.
I'm not familiar with those Drives.you would need to research and find a manual and specifications.
Hard to say about the sparks. A runaway is probably putting high currents to the motors. Sounds like you may need new brushes.