Do you have the kickdown properly adjusted? If not it will eat the front band out of it. I had a 360, 904 in a dakota a few years ago and learned the hard way. After rebuilding it 3 times because of the front band I learned. I'd say the material you are finding and the flash you are talking about in the 1-2 shift is the front band. You will likely need a new band and front drum as well.