Since this jeep is an '86 , I'm guessing it's got high mileage on it ? The 2.8 liter and 700R4 trans were discontinued for production on jeeps and S-10 Chevy 4WD vehicles since it became a common complaint and early failure rate common as well . Not to say they're all bad , if maintained and not excessively abused can last longer than expected. The engine and trans combo was not expected to perform very long as what is expected in 4WD application. It was better suited for automotive use and questionable at that. Maintenance and no abuse was its only savior at best. My brother still owns an '87 Pontiac Firebird with the same 2.8 Ltr/ 700R4 combo and still going with High mileage but it's seen better days. With all this said and regarded as a red headed step child , it still performs to,this day. I believe the leak is possibly the key to your problem if the trans is in fact losing line pressure and cannot hold enough pressure to maintain what gear it's in and forces downshift to keep forward speed . This is heavy wear to the trans and must be addressed or failure is inevitable. I respect your choice of using Lucas additive in an attempt to help it out but diagnostics are what's needed now. If it's not too expensive to have a good ( reputable) transmission shop check the line pressure , that will tell us just what condition the trans is in. The band adjustment may help if slipping is that bad but if band wear is out of spec then only a rebuild will remedy this transmission. Also , any attempts to increase line pressure using type F (Ford) fluid may be risky if the heat disapation from the fluid is not within range of the 700R4's normal,operation can cause even earlier failure. I understand the racers point but I just don't think the 700R4 with high mileage can withstand this attempt to increase line pressure and heat transfer considering the present condition of the MJ's trans now.
I firmly believe it needs to be diagnosed by an honest shop to establish it true present condition before any $$ is put into it which may be in the wrong direction. Rebuilding a 700R4 for 4WD application is pricey but accomplishable but it is best decided by you , the owner what is best since it's your money. No point in trying a 4L60 or 4L60E swap and dealing with the adapting ( bell housing and trans mount) if the cash amounts to same or close and your present trans is a better fit. A 2.8 liter takes a small bell housing and the 4L60 & E weren't used on a 2.8 in production ( only in swaps and later 4.3 liter application) so this is biting off more than we can chew financially. I'm sure you want to keep it simple and INexpensive. For now , I believe the best thing to do is diagnose the trans hoping that's not expensive as far as diagnostics go and hoping it will work,to your favor. I'm not sure whether to advise you to take a band adjustment to help proper shifting and maintain gear position as I'm question the transmissions health now. But I will say that constant slipping is building up too much heat and will ( and is) contribute to earlier demise of the transmission . Type F belongs in a Ford which is used in older type applications which is no longer used . The friction material used by Ford then is no longer used requiring this grade of fluid and in fact , Ford joins the masses with dexron ii , lll & llll and the like nowadays. The type F remedy is more of a last ditch effort but I just don't think your trans in its present contion will last very long with what material it's bands have left and heat to consider. I know I'm talking rebuild here but we still red the diagnostic results before going on . Rebuilds have their own adventures as it is. I'm sure you've heard the stories. I suggest a trusty diagnostic check to steer you right first. Wish you well and hope there is hope too. Greg
