I took a picture of this when installing my lockup kit, when I first got the trans a few months back the fluid was very nasty and I’ve been slowly changing the fluid and filter 5 quarts at a time and blowing out the lines. There are tiny loose chunks of non magnetic material that feels chalky in the filter and scarred across the pan as seen in the images. The car used to have a 2-3 flare when I first got it before I changed the fluid, I also added a vette servo for better trans life. It's been running without lockup for a long time, the old solenoid was toast so it wasnt even locking up before I got it causing excessive heat. Now I have it locking up with a painless performance kit. That stuff you see in the pictures is all loose and there was next to no sludge on the pan.

 

Dirt? Clutch material?? That doesn't look good at all. I'd probs tear the whole thing down before it becomes a problem in traffic