Yes, I work on these all day long, and I must agree, I miss the old 289 also. I miss the simplicity of the c-4 and FMX. However, no one would argue that the transmisions of today aren't better (and much smoother) then those of yesterday.
And yes, to be specific, what really happens in any of the transmissions in this particular truck is that the shift solenoid control oil flow to shift valves, which then apply/release whatever concerned parts are needed to hold/drive whatever needs to be done to obtain a specific gear.
Start with a code scan. Most of the transmission will set all kinds of codes when something is amiss. Usually (I know I'm going to get grief about this) an incorrect gear ratio code means that it's going to have to be taken out and overhauled.
What appears to be going on here is either a shift solenoid/pack problem (which explains the 2nd startoffs and lack of upshifting). This usually starts as a bunch of sludge that accumulates over time, then makes the valves stick, creating said problems. When it's cleaned out (usually with a trans service or a flush), not everything comes back all the way. Usually, it's the sludge that's holding the gearbox together. They'll run for a while after a service, but then inevitably start to slip sometime in the future due to clutch wear.
Sea Foam can work wonders for sticking solenoids and valves. However, it's not a miracle in a can. On something this old, it's problaby time for a rebuild.
The knocking you're hearing is most likely caused by a torque convertor. This is a common problem with these trans.