Les, regarding OEM overdrive setup. Firstly, with the OEM wether the cable is in or out, reverse can be selected as normal. There is a rod that disengages the overdrive when selecting reverse, does the same job as the cable being pulled out. Now of course on the OEM the overdrive solenoid isn't energized at a stop (or any time below 25 - 28 ish mph) due to the governor.
Engine braking, cable pulled out, as you stated it (the transmission) acts exactly like a conventional 3 speed so you have full engine braking.
Cable pushed in, above governor cut in speed full engine braking should be there, not as much though due to the overdrive ratio. So second gear overdrive will have engine braking similar to conventional third or top gear, third over has engine braking but the engine now thinks you got. Bonneville gears in back, obviously this feels like not much engine braking.
When your speed drops below the governor cut in speed, and the cable is in, the solenoid drops out unlocking the freewheel, result, no engine braking.
This is how it's ment to work, if it don't, something up.
In your setup with the toggle, you should be able to just switch it off and select reverse without touching the cable.
For long grades down hill when your in overdrive, it was suggested that you simply shift to second gear, which with overdrive enabled will be second over and this will/should give you engine braking close to what's available in top gear with conventional 3 speed. If that isn't enough braking and your on wiggly steep down hill stuff, you should really be in direct drive, cable pulled out.
As I say this is how it's supposed to work. The setup in my pickup is OEM style, kickdown and everything. That's what I wanted, around town it will act like a two speed automatic trans, tween second and overdrive second, only needing the clutch when I stop.
Martin.