Thanks Joel
I was hoping you'd show us the full circuit, starting right from the wall socket, including the wire that failed, and the transformer connections. I suspect that's where the problem lies, its certainly where the circuit failed, so it will surely help us to help you if you showed us the part that failed!
I wanted to check that there isn't any short between live and earth (or between neutral and earth), and there is no connection between the metal chassis and live nor between the 0volt reference of your circuit and live. I would also want to check that the transformer is appropriate for the application. I can't help if I don't know!!!
And I still don't even know if you have a fuse in the live line anywhere!
But looking at the drawing you've sent, I can see one terrible error straight away: the earth connection!In post #12 I said there must NOT be any connection to earth, because the circuit is already connected to the live and neutral wires from the mains.
The only earth connection must only be made to the chassis and NOT to any part of the circuit.
The common, 0volt, reference point throughout the circuit must be connected to the mains Neutral (and NOT to the Live).
The Neutral also goes to one end of the power supply transformer primary and to the neutral connection of the changeover relay contacts.
The live connection goes to : a) the other end of the power supply transformer primary, b) to the mains monitoring terminal of your circuit, and c) to the live connection of the relay contacts.
As I suggested, you should use a multimeter when the whole system is disconnected from the wall and check the resistances between the live pin and earth and the neutral pin and earth. There should be nothing less than a few Megohms.
I have to be quite clear with you Joel, working with live mains circuits puts you in danger and the hazard can, in extreme circumstances be fatal. If you are not absolutely confident that the connections you are making to the mains supply are safe then you really shouldn't be doing this.