The clunk may be a combination of shift overlap and the rear end play.
If it binds at all on the 1-2 shift the trans will try to stop the driveline and then the shift will slam it forward again causing the play to be taken back up and the clunk.
Try backing the front band off 1/2 turn and see what it does.
That will give it a second longer for 1st to let go before second applies.
Just a thought.
