So it seems like the lock/unlock is doing what it is supposed to be doing, meaning it's unlocking when the trans temp is getting to hot, and kicking back in when it cools. My guess? That should also kick it to 3rd gear when it's getting too hot too sometimes. My reasoning is, since once you put that switch in and kept it in lockup then your tranny lite comes in when hot. If your trans temp lite is coming on, the sensor lite kicks in a 285degrees, now that's hot and not something to ignore.
I know there some weird electrical interference etc in those years which makes it hard to diagnose. You could change out that temp sender just to see if that is faulty. I have the specs for testing it out if needed. A laser temp gun on the tranny line near the sender will give a good accurate reading also. THen you'll know for sure what you are running temp is.
Having it kick in/out like that a lot is not good either, creates heat and not good for trans.

-J