Scorp-
I am not a Muncie guru. However, assuming that it was a standard good build & it tested fine, I am left to question other areas. You had said that he could kinda get 1st w/ the clutch adjusted all the way in. I keep wondering about the linkage, clutch fork/throwout bearing, etc...
What I can say for sure is that I have had linkage problems cause the effect you describe before on a new shifter/linkage set up. is this a new set up for him? Is he using prior clutch/PPlate/TOB?
I know that it sounds elementary, but I think I would question the clutch operation more than the trans... especially when it bench tested flawless & tries to get 1st w/ adjustment.