<VV> Powerglide w/ gray fluid and metal chips in the pan

[Mike Shank]

Problem:  When I dropped the pan on my Powerglide, I found a substantial
pile of metal filings in it, directly under the filter screen.  Most of
the chips are about the size and thickness of the "dried oregano" you get
in a shaker container from the grocery store, but a few of them are ~3/8"
long and extremely thin - wire like but rough and jagged - maybe the dia.
of button thread.  I'd say there were around 2 tablespoons of chips in a
nice neat rectangular pile in the pan.  I scooped some of the stuff onto
a paper towel, let it drain overnight, and passed a magnet over it - some
of it is ferrous, and some is aluminum - it sort of stuck to the magnet
in clumps (still has some ATF holding it together) but  when I pulled a
clump off the magnet and smeared it over my finger, only some of the
chips would jump back to the magnet - lots of shiny little alum. chips
left on my finger.

So far I've drained the fluid, let it sit for nearly a week to drain the
torque converter as much as possible (definitely saw a level increase in
the drain pan), sprayed the screen w/ brake cleaner to wash out any
remaining residue, cleaned the gasket surfaces and bought a new gasket. 
It does appear that the trans pan has been off before - seemed to be some
sort of silicone-type sealer on the gasket.

Background:  I bought the car, a '64 4-door, ~ 2-1/2 yrs ago w/ 94000 mi
- drive it regularly - put ~ 7000 mi on it since then.  I dont have a lot
of history on it, but from what I can tell it had been in storage for a
while.  After purchase, I drained and refilled and checked &/or replaced
the usual things, but the ATF was nice and clean and red, so I left it
alone.  

Symptoms:  I started the car (engine cold) drove it around the block to
our alley, when I stopped in front of my garage - idling in Drive - I
thought I heard an unusual, albeit faint, grinding noise.  I shifted into
Reverse and heard the same noise.  I backed into the garage and could no
longer hear the noise in D or R.  on a hunch, I checked the fluid level
and it was down (took about 1-1/2 pints to bring it to FULL), but the
real shocker was the dark GRAY fluid - no detectable red color whatsoever
- no brown, no burned smell, just gray - probably a lot of super-fine
powdered filings in suspension.  I cant say for sure, but I probably last
checked it ~ 5 months ago (less than 1500 mi) and it was still fine then.
 As for the "grinding" noise, the windows have been down for most of the
last several months and I'd consider myself to be pretty well tuned in to
unusual mechanical sounds.  The only shifting problem that I've ever
noticed w/ this trans is that it seems to downshift late when coming to a
stop.  The only time that becomes really apparent is when braking lightly
while stopping on a wet street - often the front wheels would skid (back
wheels were still being driven).  If I manually shifted into Neutral, it
would stop normally - which I got in the habit of doing on wet stops (why
fix a problem if you can ignore it? ;-).  Other than that, the
transmission has always worked fine for me, no banging, no slipping, no
problems.

The only thing that was at all out of the ordinary recently (I forgot all
about this until now), was maybe a week before I noticed the trans
problem, while running pretty hard on the highway, the GEN light came on
- I immediately shut off the ignition suspecting a jumped belt - coasted
to the next exit ramp and discovered that the belt was fine.  Restarted
and double checked the belt - fine.  Back on the highway, ~ 2 miles later
the light came on again - checked belt - still fine.  Decided it must be
either wiring, or the generator itself.   Drove the remaining few miles
home w/ no problems - went camping w/ the Cub Scouts for the weekend (in
a different vehicle) and promptly forgot all about the GEN light problem
till now!  Now that I think back, there were very few miles put on the
car between the GEN light occurance and my noticing the trans problem,
even though probably a week of time elapsed, the car was possibly not
used at all.  (not sure how the GEN light could relate to the powerglide,
but I'm just trying to give all the facts to you experts out there! :-).

Question:  Regarding the Powerglide - would you: 
a) Reassemble, refill, drive close to home, and just keep an eye and ear
on it?  
b) Disassemble further - if so, how far and what do I look for?
c) Replace the entire trans &/or torque converter?

Thanks in advance for any advice!
-Mike Shank