I have a1988 f350 7.5 with a c6 that I recently changed the filter/fluid/filter and fluid as the old fluid was getting dirty and milky.
i ran fine last week and today, I can't get it to shift into any gears as it just sits there. No tranny noise or anything.
I had someone else move the shifter between gears and everything appears to be moving properly underneath.
It did this a month ago, and then worked.
Also, the kickdown lever at throttle body is stretched out I think.

Could I have water in the torque converter or something?

As the tranny isn't growling or anything and full on fluid.

 

The torque converter will work just fine with water in it. The clutch plates inside the trans will fall apart if they get water on them. The milky fluid suggests there is water in the trans.

 

After I changed the fluid it ran fine for the couple days I drove it though.
i think to begin with it had to much fluid, as I thought the pan was leaking originally but then noticed it was coming from the vent.

But got to thinking that since it sat all summer(periodically starting it), the modulator valve maybe go bad? The vacuum hose is oily and it's probably the original one on the tranny and I did find a bad vacuum hose right by the fitting on the back of the motor.

 

The truck in question is also a 4x4. And I noticed that when I move the shifter through the gears it is smooth as to my 90' superduty with a e4od I alittle firmer as it hits each gear in the shifter on the column.
maybr the shift arm in the tranny?

I never did empty the drain pain with the old fluid yet so I looked and it doesn't look watery, just milky

 

Also, out of curiosity how far down should the fluid be from the upper fill plug on the transfer case? Should it dribble out or be down a 1/4" ? I've tried shifting it through the gears too with no luck or any noise from the tranny or transfer case.

 

Either dribbling out or if you stick your finger in the full hole you should be able to touch the fluid.

The C6 is all mechanical/ hydraulic in operation. My C6 has firm shifts. If there is nothing then there has been a failure in the system. As mentioned the fluid should not have been milky. I'd be concerned about the water (or coolant) in there which is probably why it was overfilled. Was there anything debris in the pan?

 

You should check your coolant to make sure it doesn't look oily. You have have a failed transmission cooler in the radiator.