Jeff's 727 rebuild thread
How did the air pressure test check out before you mounted the valve body Jeff? If all was ok I would suggest as others have that the shifter linkage is a tad out or you have a cross leak somewhere in the valve body. also the 1-2 shift valve might have stuck in the 2nd gear position. With the 1-2 shift valve at rest against spring pressure it is hydraulically impossible that 2nd gear can be engaged even with the shifter in manual 2nd.