After some more testing, I'm certain the issue is the interaction between vJoy and DCS.
In case anyone else runs into this issue, I actually got it to go away. They way I did was to attach an old joystick (T16000) and map the x and y axis of that old joystick to the TDC Slew (I've preferred to keep my joysticks directly hidden from DCS and just use remapped vJoy virtual joysticks so DCS doesn't directly see my Virpil Throttle). This both made the TDC Slew work and made it so the target designator didn't move. But it would have been incredibly awkward to use.
To my amazement when I remapped the TDC slew to the original vJoy axis it suddenly worked. It continued to work after I shut down and restarted both Joystick Gremlin and DCS and it continued to work. So if you have a similar setup hidHide -> Joystick Gremlin -> vJoy and have this issue try mapping the TDC Designator Controller directly to an x and y axis and see if that makes the problem go away.
EDIT: with the recent update the problem happened again. Tried this fix and it didn't work until I put the curve and deadzone back in. I had tried setting the curve and deadzone in joystick gremlin and that doesn't seem to work. But with a deadzone of 10 in DCS itself the TDC slew and targeting bug went back to working. I still suspect it is an issue with vJoy virtual sticks specifically.
