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One item, start the burn out in 2nd gear and shift to 3rd gear. DO not allow the tires to ''hook'' while in 2nd gear. That is very hard on the 2nd gear sprag.
Next item, the trans is stuck in 3rd gear from your description. I suggest you remove the pan and look for debris, check shift linkage ( although it sounds like it's OK).
There may be damage in the direct clutch drum or 2nd gear sprag that is also on the direct drum.
850 hp is beyond the power limit of a T-350 in my opinion. I hope your trans has billet input, 36 element sprag for 2nd gear
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At the Bonneville Salt Flats, first gear is known as 130 mph.
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