I had a 7.4l vortec that would do the same thing with the oil pressure gauge, it was a cracked sender. At idle the crack was enough to make the ECU cut fuel to save the engine, with RPM, it was still bleeding pressure, BUT the ECU was happy.
Might want to heck your oil pressure sensor before condemning the motor, it might be a small leak that only present when oil viscosity and underhood temperatures are just right.
As for power.....what gears are in the axles? I had an F150 with 2.73 gears in it that (obviously) really came alive with new gears.
