Brake System light revisited

If he pulls the wire off, that's a guarantee the light won't work but it doesn't answer his question.

The fact that the piston DOES center when you apply pressure shows it is working properly in that regard. But why it is moving off center when you release pressure is the mystery. (You didn't say if the light comes back on when you release the pedal but I assume it does). Even in the factory manual, it is noted that if you have some sort of failure and the light comes on, you are only supposed to fix the issue then the piston will re-center itself so the light goes out.

Is the master cylinder the right type? Does the car have the proper hold-off valve as used on the disc cars of that year? This is a smaller brass block, independent of the main prop valve.