That is true, don't tow in overdrive. When the early 700s are run in overdrive, the line pressure actually drops. Towing will cause the clutches to slip since there is less pressure to hold them locked. The later 4L60E trans with the Tow/Haul switch actually regulates the pressure electronically, and raises the line pressure for towing in overdrive.
One more note about the 700R4 over the TH400, the 700 has a deeper first gear, which is better for takeoff.

Bill Burmeister