John,
I'll bet the problem is actually your DG and not the S-Tec 30. I have your setup exactly and recently had this problem. I wasn't real sure, but I suspected the DG, which I had initially bought overhauled. Sigma-Tek recently had an exchange deal for a brand new DG for about $700 plus your core, so I took the deal and the heading bug now works perfectly. Just a data point for you.
In my case, the heading bug just quit working one day. I could still use the heading steer knob (ST - Stabilizer mode) on the autopilot, but as soon as I went to heading select, it would quit working. Chances are, if your heading steer (ST) is working then the problem is probably the DG.
Hope this helps.
