I have a 1994 Jeep Grand Cherokee with the 5.2 L. and it recently has started this relationship between the speedometer needle jumping from 30-110 and many other weird combinations. Anyhow, as the needle jumps around the transmission seems to react with it. I was doing 55 on I-5 and when I finally got to speed the needle kept jumping up to 110 and back and forth and as it jumped high the transmission would down shift like I was hitting the passing gear. I was thinking that maybe the speedometer cable has gone bed but I never thought that the two effected one another. Any ideas would be helpful.

You might try looking at the speedometer sensor (there is no cable.....everything is electronic). The sensor is on the transfer case on a 4.0 liter; not sure about the 5.2. The sensor feeds the computer that feeds the speedometer gauge. But this has no effect on the engine/transmission speeds.......read only.

There are also two sensors on the transmission (speed input and speed output). These tell the computer how fast the tranny is turning. They are also known to go bad.

Well this what Mitchell On Demand 4 which is what many auto repair shp used. Next to Aldata. Mitchell says this,
"Speed sensor, mounted in the adapter housing or extension housing, is an input device consisting of speed sensor rotor and speed sensor. Speed sensor rotor is mounted on transmission output shaft. Input signal is delivered from speed sensor to TCM with each revolution of transmission output shaft. The TCM uses input signal for controlling transmission operation."