Transmission Trouble...

I recently rescued a 2WD '83 Subaru wagon with a 1.8L engine. It had a nasty sputter and blew white smoke out of the tailpipe. After replacing the drivers side head gasket it quit smoking and began to run better. An electical system tune up also helped significantly. It had a shimmy but a new CV joint and driveshaft assembly fixed that. There are still a couple of problems with it, the most serious probably being the transmission.

When I put it into reverse, it kicks in really hard, like I popped the clutch but it is an automatic. It seems like it gets a little better when it is warmed up but I can't be sure since we haven't driven it much. It also stalls the engine out when I slow down to make a sharp turn. In other words, it won't idle when it is in drive or reverse, the engine luggs down and dies unless you give it gas and hold the break. We would just put it into neutral when we knew we were going to have to stop. The idle is already kind of fast but adjusting it either way didn't seem to help. We think maybe it's a torque converter but before I go buy one and install it, I thought I'd ask you guys.

Problem number two is this, water still comes up from the breather valve into the air breather. You're probably going to lecture me about not fixing both head gaskets and you're probably right but understand that I am working on a very limited budget and need the car as soon as I can get it. We changed the oil and filter and it definitely had water in it. When we cranked the car for the first time with the new head gasket it smoked pretty bad for about 7 minutes but then it stopped completely and hasn't smoked since. We really haven't driven it a lot since we got it back together. We have checked the water after driving it about 10 miles and it doesn't seem to be losing any. I am hoping that it is just working the water out of the system and it will possibly stop. Is this possible?

This is a weekend only project for me and the car is in my dad's shop an hour away from where I live. I fully intended to drive it home this weekend but it still seems to have problems. Next weekend starts round 4. Any help you can offer will be appreciated.