Alright, had a chance to get back into this transmission - I took apart the governor and it was stuck again. I cleaned it up more thoroughly this time and replaced the sealing rings.

On retesting it, I'm getting much better governor pressures - getting as high as 45-50psi at 45mph or so, and consistent movement. 0psi at rest. But, still not getting 3rd gear.

However, in pulling the pan I found a mess of clutch material. I know where I am headed next, but I still want to diagnose this, and not just replace parts without understanding what happened.

I am going to air check the clutches and reinspect the valve body next. What else can I look for here before pulling it out of the vehicle? My understanding is this is most likely a front clutch issue right? If that had failed wouldn't I get neutral after a 2-3 shift rather than just stay in 2nd?

Thanks!