I have been told by someone who has a lot of experience with tranny's that when the valve bodies are torqued down during the rebuild process that sometimes the spools stick. His suggestion, again from experience, is to remove the pan and rap on the valve body with a hammer to unstick the offending spool. I'm going to give this a try.
I have ruled out any problems with the cable. Yes, the old tranny shifted good but "dropped" into fourth gear. I was told by an "expert" on justanswers.com that that is a common occurence with older aod's and that I shouldn't have swapped the trans just for that. I did swap it because the fresh rebuild came with the purchase of the truck and I figured that since the rest of the drivetrain was new, why not have a fresh tranny.
At one point I had it adjusted and working properly, but the next day it started skipping second gear. I tried the adjustment process several more times with no luck. I have had the adjustment slide to max extension, so it makes sense that if the valve spool is sticky, holding it fully depressed for several driving excursions would cause the problem to get worse.
I am hoping that this unorthodox fix will be the solution to the problem.