If the engine has to idle so high that it's on the verge of (or is already) idling on the transition circuit, and the engine rpm drops way down when the transmission is engaged, the torque converter- if too tight- will cause the rpm to drop. This is uber common w/any sort of performance camshaft in combo w/a stock stall speed TC.
Another thing that can do this is if the mechanical advance is already adding timing at idle speed (very possible if you're idling at an abnormally high rpm), when it's put into gear, the drop in rpm causes the timing to drop as well. The result is the idle speed drops too much.
Have you checked to see what the timing does when out of gear compared to when in gear? What are the cam specs?