[P.S.]

Sounds like the generator is working exactly as it should considering the voltage drop between the generator and the battery through the cutout, wiring, terminals, etc. it's behaving precisely as expected. The cutout should not have more than 0.1 volts of drop through it under load, and 0 volts drop with little or no load. Sounds like resistance in the cutout or the terminals or cables between the generator and the battery.

One way to "fix" this is to switch to a 6VDC positive ground alternator. It isn't exactly a fix, but it will mask all the symtoms enough that you could live with them happily ever after.