My engineer and I still haven't come up with anything acceptable to me. He is pushing plywood sheathing (or similar) or steel X bracing pretty hard. I'm not dead set against sheathing. I guess we could use it as backing for our strawbales... However, I am re-interested in timberlinx method again as it looks to provide additional strength. I have an e-mail out to them about response modification coefficient R value when using their product. R value is used to determine load capacity with regard to a structure that is moving (shaking). Straight ahead timber framing gets an R value of 1.5 which reduces my load capacity by 2/3rds! Sheathing R value is 6.5 reducing load capacity by only about 1/7th.
http://www.timberlinx.com/about.php
Not trying to put any timberframers out of biz! Just trying to increase the solution knowledge base for peeps in earthquake country. I'll post later what I found out.