727 Valve Body Disassembly Findings

The fact that the trans is shifting properly says volumes to me. The one area you circled looks like a manufacturing defect, which is not in an area that would cause you problems. A rebuild shop could have used anti-seize compound that washed off into that area where the crud was. Again, if it is shifting OK, don't sweat it. Clean the VB up and follow the shift kit instructions to the letter. Take your time and you will have a nice shifting unit when finished.

I agree with your statement, I could just not for the life of me figure out why that copper stuff was in there. I finished up the shift kit install, just need to put it back in the trans and cross my fingers

The copper stuff is bushing and thrust washer wear. How much endplay does it have?

I did just replace a tailshaft bushing that looked like it had some wear on it. Unfortunately the trans in still in the car so I don't believe I can check that.

The valve body is not original to the trans so it could even be from the trans that it came out of.