The problem is almost surely in your gauge cluster. On 1988-1991 the speed sensor buffer circuitry is part of the cluster's circuit board. When they start failing, you can loose speedometer function, and also torque converter lockup control. That's why it feels like it downshifts - you'll get a couple hundred RPM rise as the torque converter unlocks.
I've seen people destroy their dashboards whacking it to get the cluster working again. That tells me the likely cause is either a bad connection at the socket (oxidation on the pins) either where the truck's harness plugs into the cluster, or where the speedometer plugs into its pins in the cluster - or possibly failed solder joints in the cluster.
You could start easy; pull the cluster and spray DeOxit contact cleaner in the socket and on the pins, reinstall. See if it improves. If not, carefully disassemble the cluster so you can pull the speedometer away from the circuit board, and spray the DeOxit in the pins where the speedometer connects. If that doesn't do it, you're looking at re-soldering the joints on that circuit board, which is easy, if you can do basic soldering work. If not.. find someone who does.
As far as your speed sensor goes, you can test it with a voltmeter. Check the factory service manual for more info - links included for free downloads in the sticky posts at the top of the "Engines" section. The leak can be cured by replacing the seal. If the sensor is working, no need to replace that..
Richard