35 mph WOT power loss

Also when adjusting the line a touch tighter it didnt want to shift into 2nd until much higher speed.
That is proof right there of an improper synchronization between the governor and gear-ratio. You gotta fix that, top priority, else you will be dicking with the KD system forever.

When you put it into Drive, the governor controls the upshift rpm, according to road speed and rpm. With the carb Wide Open, the upshifts should occur at a very high rpm, that you chose, based on where your peak power plateau is.
But, at lower speeds, if it remains set like that, the shifts would be very late and very harsh. So Chrysler engineered the KD system to reduce the internal pressures for a more comfortable driving experience.
But if your governor pressure is out of sync, too high in your case, then your adjustment window becomes too narrow. So then your options are to adjust the KD system to the max, or to crank up the line-pressure, both of which only bandaid a bad situation. Your governor is too heavy/and or too fast. You took a shortcut, and are now paying the price. Daymn covid........
The governor flyweight does not have to be lathe-cut. You can whittle it out with a grinder, just leave a bearing surface at each end. But, it may still require a different spring.

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BTW, the pressure sync will also, to some extent, change your automatic downshift speeds, which can be handy coming up to a corner,or climbing a hill, if your trans has a PT KD. Sometimes it's nice to be able to go down a gear, just by giving it a lil more gas-pedal, instead of to-the-floor, or manually down-shifting..