I think I discovered the source of the problem. I researched other C64 forums and found out that a bad power brick could cause these symptoms. A quick test with the multimeter showed the 12V pin was actually putting out 18V. I guess it is back to Ebay to find a power brick.

Hello. I am new to the forum and need some help! I recently decided to relive the C64 days of my youth and purchased a C64c and 1541-II (no manuals) on Ebay. The 64 works fine and when I first tried the 1541 I was able to format a new disk, save a small BASIC program and load it back in the C64. So ...