Well, scratch that ...... not quite correct - it looks like the selector valve only controls P, R, N, and D - the selection of a specific forward gear, or gear range, is controlled via the TCM (transmission control module) - hence the are no specific positions for the selector valve for 1st, 2nd, 3rd, 4th, or 5th. Specific gear ranges are selected via the shift assembly communicating to the TCM, and then in turn to the transmission itself.
First thing I'd do is the easiest - you mentioned you had failed to pull the ground at the battery when you disconnected the electrical connector at the tranny - I'd pull it (ground at bat) now, give it a few minutes and reconnect and then see if it clears out any electrical cobwebs.
BTW, does the display in the IC show "D" or "1" ?