Bad move.  Idle speed cannot be adjusted. Only set the base
idle.  IAC control actual idle speed.  Never screw with that
"adjustment" unless you know what you are doing with a very
good reason.  It sounds like someone was covering another
problem with a false high idle.

I believe what they may have adjusted the nuetral switch.
Not likely a problem on an AOD for the problem you describe
as the AOD is not electronic.

Sounds like a bad trans throttle adjustment or worn
connector bushing.

See below

No.  Don't touch that for now.  It was slamming the hell out
of the drive train.  You may have a broken engine mount if
that went on for long.

I love the sound of the Flowmaster on a healthy 'Stang.  You
are probably better to spend your money on something other
than either until you get it healthy "stock" and understand
exactly what you have now.

As you say, you don't appear to know the car.  No big
problem as long as you are willing to learn.

First, have you done any modification away from "stock" at
this point? You mention the BBK air flow kit which I believe
is a throttle body.  Maybe not.  In any case, you should
stay away from it for now and make sure it is performing
properly in it's stock form before you start modding.

The '88 year model used the AOD automatic trans.  One of
it's weaknesses was the bushing for the trans throttle cable
at the throttle body connection.  They tend to wear out or
break allowing the cable adjustment to get off.  If you
continue to drive in this condition, the trans will be
operating with low line pressure which also controls the
shift points and quality in the AOD.  This will destroy the
trans in short order.   You need to get to a dealer pronto -
today -  and get the new type bronze bushing for the cable
connection.  It is not expensive.  It is easy to install
but, the adjustment is a bit tricky especially if someone
has monkeyed with the throttle idle stop adjustment to
correct engine idle speed.  The base idle speed has to be
set using a very specific procedure very carefully.  Actual
engine idle speed is controlled by the IAC.  If you do not
have a manual, get one now.  Once that is done, the
transmission throttle cable can be adjusted.  If you drive
the vehicle with low line pressure, the trans can destroy
itself within very few  miles.  You should not drive the car
until this problem is corrected unless you are ready to
invest in a new transmission.

Once this is done and the ECM reset, you should drive the
vehicle a couple of days to watch for any engine fault
codes.  You can buy a scanner for that one very cheap or go
to the site below for a cheap way to read it along with the
codes if you have a good helper.  If you have codes, post
them back here with the description.

As far as the air flow kit(s), they are pretty much useless
on an otherwise stock application.  Your exhaust system will
help but, only well above normal operating speeds.  The best
thing about the exhaust is the sound quality and the
illusion of more power via being louder.  The best thing you
can do before you start anything is get it running right in
stock form if for no other reason than to make sure the
engine is healthy enough to be modified reliably.  Many
engines that old are just plain tired just like people when
they get old.  It will do it's job but, may not take well to
being leaned on without a rebuild.  This may be the start of
your best-bang-for-the-buck education.  You can run out of
bank account long before you get anywhere near what you want
if you are not careful.

Cheers and good luck
Lugnut

http://www.troublecodes.net/Ford/

I also meant to mention there is a Mustang group with a
wealth of knowledge if you can tolerate the condecention,
bullshit and flaming.  Once you figure out which are willing
and capable of helping and which just like to stir up the
s**t, you can learn a lot specific to your Mustang.

Cheers

Lugnut

Check the U-joints for sure.

Brad