Ok, tried a few more times now, let me walk you through what I've done.
First, using TWRP, I go to Wipe>Advanced Wipe and select EVERYTHING except sdcard, do the wipe. No errors.
Next, Install. I've now tried both TN KitKat and gapps together, gapps seperately after KitKat, and gapps seperately before KitKat
Each time the result is the same, new boot into KitKat results in the first run demo and no gapps to be found.
Here is the odd part I've now noticed that makes me think either I'm not doing something right, or TWRP isn't treating system correctly. All references to TWRP's file manager means using Advanced>File Manager.
On a new wipe, TWRP's file manager shows usr and bin directories in /system.
After any of the above methods of flashing, TWRP's file manager shows usr and bin AND everything from the gapps package but nothing from the KitKat package.
After first boot, ES File Explorer shows everything expected from the KitKat package in /system and nothing from gapps.
After first boot, rebooting into TWRP and using it's file manager shows only usr and bin present in /system, none of the KitKat or gapps stuff, yet booting back into the system works fine and ES File Explorer continues to show the KitKat stuff in /system.
Attempting to flash the gapps package in again after first boot gives the same results as above.
Attempting to copy anything into /system via ES File Explorer fails on a Read Only error.
Attempting to copy gapps into /system via TWRP file manager gives the same results as flashing the package.
Some other info that may or may not help... Using the Repair or Change File System tool in the Advanced Wipe menu reports the following for System partition: Mount Point: /system, File System: yaffs2, Present: Yes, Removable: No, Size: 350MB, Used: 317MB, Free: 32MB, Backup Size: 317MB
I appreciate the help, I'm thinking that certainly I've missed something along the way, but I can't figure out what.