Loose convertor
A WAAAAAY loose converter is a definate NO NO if you are looking for somewhat accurate rear wheel #'s...
The HP is just going up in the form of heat and slippage in the converter. Most dyno guys say 15 to 20% loss w/ a converter, IF it's right.
Did you data log the dragstrip runs?? If so, what RPM drop do you see on the shifts?? The target I shoot for is 1000 to 1200. ALOT less and you are "driving over" the converter.
Since these engines, in production form, are done "playing" at about 5200 - 5500, a real loose converter will really kill the RWHP, and the strip performance.
Does the converter have a LU in it? If so, did you try it locked on the dyno??