[jee7s]

If you can describe a bit more of that scope flicker, it may lend an explanation.

Here's a possibility: If you get rapid flicker when the object is present, then it's probably a supply issue where the system can operate with little load (i.e. it's not pulling current through your 1K pullup). Once it has to switch, however, the current draw causes a power dropout. This could be either the internal circuitry going undervoltage or your supply line going undervoltage. Once the unit loses power, the supply returns to the nominal condition, it turns on, and it tries to signal again, repeating the power loss. This would explain a fast flicker with an object constantly presented to it.

As your teammate said, verify your supply voltages and report back.

As a cautionary note, I'm not sure if the DSC is 12V tolerant. Those 5V pullups on the DSC PCB would do the job you want.