Alright last weekend I was finally able to put everything back together and drove the car around for the last week. All of the old problems are gone and transmission seems to be shifting correctly. I'm not sure what I exactly I did fixed it, but I went through the following items:

B2 piston (seal replacement and thrust pin clearance check)
K1/K2 springs replacement
Vacuum modulator replacement
ATF fluid change

It's been a crazy experience, but thanks to all the resources, I was able to pull it off! I did a huge knowledge dump on my wiki, hopefully this can be of some use to someone later on: 722.3 - Star Wiki