Okay- that makes more sense. Unfortunately I have no clue why you are getting the on/off phenomenon on your Insteon switch.
Are you using triggers to capture the button-presses or are you linking the Pico to the Insteon switch from the Lutron settings drop-down?
Edit: Possible solution? If you are Toggling on any command, pressing AND releasing the Pico button might be sending two commands (at least, if is similar to some Insteon sensors). Fir example, I use an open/close sensor wired to my doorbell- a bitton-press triggers two commands.