First, thanks for all the help here.
Unfortunately I was not aware of this problem when switching AC relays. We can rule out the load on the relay because we can get the circuit to reset on the bench with no load on it. This makes me think that there is a nasty little spike travelling down through the ground back to my board. If I insert an MOV at the relay the problem seems to disapear. However this I consider a not so easy to implement solution since there about 400 of these products out in the field right now that need to be corrected.
As for driving the relays I use a small signal relay that switches the 24VAC to the larger relay. The small relay is driven from a transistor connected between it and ground. I then have the base connected to the PIC via a 10k resistor.
As for solid state relay, way too expensive and way to much real estate. Would be nice but not doable.
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