727 no 3rd

Well if reverse works; they share the high drum. So if reverse works, the high drum is working.That means the issue is most probably in the VB.
There are three main pressure circuits in the tranny; 1)line pressure, 2)throttle pressure, and 3)governor pressure. These three are always changing and doing their little dances. If they get out of whack you get crap happening.
-So as usual, the first question is; is the KD system hooked up, correctly and with the correct ratios? At what road speed does the 1-2 shift occur with minimum throttle and does it vary with heavier throttle inputs?
-Did you replace the convertor?
-Did the tranny work fine with the one ball missing?
-"3rd looks like it wants to go at 40 or so then slips into neutral." This is a really big clue. It tells us that the VB is commanding the 2-3 shift, cuz the same oil circuit the engages the hi-drum also disengages the KD band. Since the KD band is releasing and the tranny drops into neutral,this means the hi-drum is not engaging. But since the hi-drum works in reverse, this seems to indicate that there is a problem with the oil-routing,or oil-pressure. So either the ball you put in, is not supposed to be there, or there is a problem in the VB casting,or that circuit is just not receiving enough oil-pressure to get the job done. That speaks to a faulty line-pressure adjustment, or insufficient throttle pressure. See, in reverse, the pressure to the hi-drum,is maxed out somewhere around 230plus psi . But in drive, that clutch might only receive between 50 and 90ish psi, depending on the throttle pressure(controlled by the KD mechanism).
In any case the VB has to come down,for inspection. While it is down, you can perform an air-pressure test to verify the front clutch packs are working.

-What does this mean:"Also the Toque converter is super tight. NO stall engine runs in park and in drive with brake."?