Update:
Well, things took a turn for the worse. I split the overdrive a month ago to inspect seals and mechanical components. Everything looked ok so I proceeded to swap out the operating pistons (as I suspected these seals were failing when warm but had no proof). One item of note, the pistons were slightly taller then the originals (a few millimeters), I don't know if this had bearing on the outcome? I put everything back together, filled with straight 30, ran on lift, rechecked level, did this two times before oil level stabilized. I then proceeded to back the car out of the shop, but as I let the clutch out in reverse I heard a whizzing noise from the transmission area and reverse movement was feeble at best. I engaged first gear and that seemed normal, so I then pushed the car out the shop and went for a short drive around the neighborhood. Right away I knew something was wrong because no matter which gear I was in as soon as I would let off the throttle in decel, instead of having mechanical and gradual RPM drop, the RPMs would immediately drop to idle until I applied throttle again whereas it would rev freely until "catching up" or matching the previous RPM where I had left off. So, back to the shop I went. I brainstormed for awhile and really couldn't think of anything I did during this operation to cause this so I pulled everything back out and apart (the next day) and replaced the old operating pistons as they were the only part I had exchanged (also thinking the piston height difference may have been the cause still). Buttoned it back up and went out for another test drive. Nope. Whatever damage had been done was done, exact same symptoms.
So here I am a couple weeks later finally ready to tackle this again (4-5 hours each time was pretty disheartening so I walked away from the car for awhile). In the interim I luckily came across a later J type overdrive that we had buried in our used parts storage at work (until this point I did not realize that there was an early and late style J type). I disassemble it and inspected it and found it to be in excellent shape, looking like it was removed for other reasons from what I assume was a failing M46. This also gave me an insight into a few differences between the early and late J type units. The operating pistons and seals were definitely in need of replacement, some scoring which I carefully polished out on the piston walls and replaced with my new pistons. Again, this were slightly taller in dimension then the originals. I buttoned everything back up but I have yet to install it and test in car yet.
Before I proceed again I am looking for some feedback. Has anyone ever experienced an M41 in this particular failure mod? Has anyone here swapped out the "upgraded" operation pistons? Am I going to cause a similar failure by swapping out these pistons in the newer unit or did I make another mistake during my original work in the earlier unit? Will I encounter any issues with swapping over to the later J type? Mainshaft compatibility?
Pictures shortly.