The most common problem with those symptoms is a bad
overdrive band.  This require teardown of the trans to
repair.  The biggest things you need as far as tools is a
universal clutch pack compressor common to most rear drive
domestic cars, a good assortment of snapring pliers and the
seal protector set for installing the clutch pistons.  The
clutch pack compressor will probably set you back around
$100 if the shop does not have it.  The seal protector kit
around $40 for the plastic ones.  You can go for broke with
the machined metal if you intend to do this frequently.
Before you pull it, be sure to check the throttle cable
bushing at the carb.  The originals were plastic.  The
replacements are brass.  Should cost under $5 even from
Ford.  If this bushing is bad, it can give the symptoms you
describe. If it has been this way long, replacing the
bushing may not be the cure.  The throttle cable controls
the trans line pressure and is sensitive to adjustments -
big time.  If the bushing has been loose long, the pressure
has been low allowing the trans to slip.  The clutches are
probably toast if this is the case.  BTW, you will need
either a trans jack which can usually be rented or a couple
of buddies to get it out and back in.  When you reinstall
the trans, make damn sure the converter is fully seated in
the trans.  You should be able to rock the converter back
and forth with your fingers after the trans is bolted to the
engine and before the converter nuts or bolts are tightened.
If you can't pull it back and reseat the converter.  If the
converter is not seated, it will destroy the engine thrust
bearings and the trans pump in short order.

Lugnut

Is this the big LTD Crown Victoria or the smaller LTD that was the
same size as the Fairmont?  Both were rear wheel drive cars, but it
would help to know which model you're talking about.

I'm not a Ford expert by any means, but I thought rear wheel drive
Fords had vacuum modulators that regulated the shifting in their
automatic transmissions.  If the modulator isn't working, or if for
some reason the engine is out of tune, causing a poor vacuum signal,
the transmission will shift late, causing the engine to rev before
upshifting.  I assume you mean it's in 2nd gear before upshifting into
3rd at 35 mph.  With overdrive, the 4th gear doesn't usually kick in
until 45 mph or so even with light pressure on the gas.

Are you sure this has an overdrive transmission?  I think the Crown
Victoria had it by 85, but I don't think the smaller LTD did... GM
cars had a D with a circle around it if the car had an overdrive
transmission, then D or 3, then 2, and then 1.  I'm not sure how Fords
were during this time period, but if it's a regular D, then 2, then 1,
I don't think it has overdrive- it would be a regular 3 speed
automatic- which is what I think the smaller LTD had.  Someone correct
me if I'm wrong.

In any case, I DON'T think you need to do a rebuild.  Why not change
the fluid and filter and check the vacuum modulator (or throttle valve
cable adjustment if that's how shifting is controlled)?  The service
manual will tell you how to do it.

A friend's '89 mustang as well as a '92 Tbird sport I owned both
had this problem.

Both had the 302 V8 with the overdrive automatic.

It turned out to be a 5 cent part...a plactic bit attaching a throttle
position cable that goes from the the EFI throttle (attachs next to
the throttle cable if I recall correctly) down to the transmission.

Someone told me that this cable controls the oil pressure in the trans,
too.  This makes sense, since my trans fluid ended up turning black.

--Ken