Could be the blocker ring. Had one go in mine. It spun in the housing, taking a chunk out of it in the process. Did just as you describe. The only way to know for sure is to tear it down. Not really a hard trans to work on, though. You may want to see about getting a parts transmission, perhaps from e-bay. doesn't need to have a good main trans, as long as the overdrive is good. I see them for around $100-$150.
The manuals I have (Factory manuals, '55-'59) all say 90 wt, regardless of transmission.
