I finally got it working today. I pulled the drivers side caliper off to check for piston rock and found that one of the pistons was stuck and was hard to push in. I pulled the piston and found that the seal at the bottom of the piston had a tear in it. Maybe I caused the seal to tear when I installed the piston.
Anyway, I replaced all the seals and put it together and the pads worked correctly. I added fluid and took it for a drive. The driver's side worked great, but the wheel was pulling to the passenger side. I pulled the passenger side caliper and found a piston with same problem. I fixed that side and now both sides work great.
So in the end, I think there were two problems, the manual brake master cylinder was holding pressure for an extended period of time and the seals were not working right, which also held the pistons from retracting once the pressure in the line was released.
I might still go with a 69 set up later though, parts for the 4 piston set up are getting hard to find.
I had the same problem recently on the front calipers of my old motorcycle. It ended up being crude under the piston seals causing them to not retract fully. I know it seems stupid but did you clean the groove where the seals go? I had to use a dentist type pic to remove the stubborn stuff but they work like new again.
