Answered my own question.

According to the AutoProm manual (here) the innermost switch must be in the outboard position. In the innermost position, 160bps / 10K resistor across AB is selected, which puts the 7747 ECM in ALDL mode (I presume) and forces a 1000rpm idle.

So what was happening is that in drive, the ECM was trying to achieve a 1000rpm idle by progressively increasing the IAC which didn't work because there was too much load on the engine (low stall torque converter) to ever reach 1000rpm using IAC alone.

With the innermost AutoProm switch in the outboard position the symptom of increasing IAC while in Drive disappeared.

Now, back to VE tuning...