Pete, is might indeed be possible to use this for a block signal system, but a grade-crossing circuit is more complicated than needed for block signal use. In particular, the grade-crossing unit needs to come on when the train is far away from the crossing but go off just after the train clears the crossing. That's not so hard, except it has to work with the train running in either direction. That is harder.
The real question for the Circuitron unit, which uses optical detection, is what happens if the train stops while in the grade crossing. Not supposed to happen of course but we all know it does. I'll wire one up someday and see how it goes.
There is also the question of what happens if you have more than one track. That might completely confuse it. But I have two of these so I might be able to make it work for the club layout double-track mainline with a little added digital logic. No time for that now but hopefully before the decade is out.

Jim