It starts out in 1st gear and does a neutral like shift through all of the gears. If I manually shift it, it doesn't do it as bad but still does it.
I check the fluid frequently and it it always full, looks clean and not burnt.
If i take it out of over drive gear and drive in third, it doesn't do it as bad.
Test Sol A, B and your 3-2 control solenoid for continuity (note - these solenoids can fail mechanically but since yours is throwing a code, it may or may not be providing the right continuity signal to the PCM). Your problem sounds mechanical to me, given you're shifting as you should however the shifts are not normal (false-neutrals are typically line pressure or applied elements related).
I'd start with a line pressure test to determine if you're getting adequate pressure inside the unit. You should see somewhere between 55-75 PSI in P, N, D4, D3, 90-120 PSI in Reverse and 140-180 PSI in Manual Low, 2. Manually shifting increases the line pressure significantly over what is generated when in D4 so if your applied elements (forward clutch, 3-4 clutch, 2-4 band) are heavily worn, they may not hold under normal line pressures but hold a bit under elevated pressures in the non-D4 forward range settings.
Here's the wiring diagram for your case connector...You can test it there as well as the solenoids themselves directly once you drop the pan.
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