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What is happening is that your car doesn't like a locked up drivetrain at low rpms like this.

Think of it as if you had a manual transmission, in the highest gear, at low rpms, and you just hit the gas. It will buck and fuss with you, until you downshift.

What you have done is created the same scenario by locking the converter. The reason that it gets better then worse then better then worse is because, after you lock up the converter with the vacuum switch, you hit the gas, and it bucks/misses, then vacuum drops, the converter unlocks, allows the engine to rev up into a more friendly powerband and it starts to accelerate. Then it builds vacuum up again, the converter locks, and knocks you down into your bucking/missing area of your powerband again.

When you have it set to lock at the highest vacuum setting possible, you are just blipping the throttle, dropping just a little below the on point, it unlocks, and gets you out of it. If you lower the vacuum further, you will probably make the problem worse, not better, as it will take more throttle to get the converter to unlock, which in turn will cause more bucking/missing until it unlocks.

What you are describing driving on a smooth, level road, seeing it lockup and RPM drop, and then slightest touch of throttle causes to unlock and RPM to go up is behaving exactly as it should if you have the vacuum switch set really high. If you lower it, you will be able to give it more throttle before it unlocks again, but it seems like your car doesn't like to run in that powerband with a locked drivetrain, so you will probably increase your bucking/missing if you do that.

Unfortunately, I don't have a good solution to your catch-22 situation you are in. I run all my 2004r transmissions setup for non-lockup and have no issues with any overheating or anything. But, you can't just run them non-locked up all the time (so I've been told) - you have to make some mods and run a converter with no clutch in it.
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