After finally getting the th350 out and th400 in, I filled it up with fluid, ran it, filled it, and drove it. It was having a problem at first with going into gear, it was like neutral in all positions (with wheels off the ground). After warming up some more, I revved it up more (no tach) and it finally kicked into gear. Took it around the block, 1st was working good, nice hard shift to 2nd, but it wouldn't shift to 3rd. Had to be doing 40mph+ for it to shift. After finding out the adjustment spot in the vacuum, I ended up doing about 1 1/4 turns counter-clockwise and now it shifts better. However, it downshifts all the time, on or off the gas, when in 3rd. Why does it do this?
I drove it home and drained the fluid. Here's the results:

in the drain pan


in the trans pan.
They aren't steel but seem to be brass. Did some research, but couldn't find anything brass that would do this in a TH400?
However this piece was in between the filter and valve body:

Seems like the spacer but the ones online don't step down in size like this. Is this the wrong size?
Looking up numbers on the tranny, it appears to be from a 69 Camaro if that helps. Has sat for the past 10 years in a shed.
Any help is appreciated!