As I remember the 700's don't lock up in first. They lockup in 2,3 & 4 unless they are told not too by the TV cable, manifold pressure switch or the break pedal switch.
I bypassed the vacuum switch because I was running a cam and the pressure switch wasn't right. Never had any issues other than not liking the 700r4's.
Check the TV cable is adjusted properly? Check The vacuum lines are not causing a massive leak somewhere? Put a temporary tach in for diagnosis should drop 200 rpm upon lockup and vice versa? Check the switch on the brake pedal it has adjustment in it also. But most of these faults would cause a non lockup issue.
I would have look at the vacuum switch first (did you take the wiring of this switch out of the equation or just cap off the vacuum lines)? They electrical portion is probably still trying to control lockup.
