I have a simular set up. 5.7ltr vortec SM465 orion t case. I read several posts about not needed the VSS that it ran fine with out. People say you only need it when you run an automatic. However, You do need it and should run it so don't let anyone talk you out of it. It does control air fuel mix and the computer needs the signal. THe big thing is if the computer doesn't get the signal it will run in LIMP Mode which will eventually damage the engine.
I did a tone of research on this and tried to find the best solution. The solution I went with was the best I could figure. I origioanlly tried to have a rear output cove machined to accept a vss and then figure out how to get a toothed ring onthe shaft for it to read. Not possible with out a ton of modification.
There are two options: WHat kind of adapter do you have adapting the 3 speed case to the sm465?
1. If you have the adapter like the AA adapter where the shaft actually goes through the tcase and sticks into the rear acces cover like stock the best option is to go with the Downey
http://www.downeyoff-road.com/ set-up which will give you the 40 tooth reluctor ring read through a machined rear access cover.
2. THis is the option I did. I have a thin 3/4" plate adapter. There is no shaft that goes through the t case the gear is on the sm465 shaft. I got a set up from BTB Products
http://www.btbprod.com/ talk to Larry. They are not cheap but they do know what they are doing on vortec conversions. THe set up is a short 6" cable that comes out of the speedometer port on the tcase. it is then read by a VSS so that you can send that to the vortec. I think it is 30 pulse but works according to them. I do nt have mine running yet but it seems like it will work.
THere is also a bunch of information on the following web site
http://www.jagsthatrun.com/ however most of the info is for TBI & TPI. I think when I called them they left me without an option but the info on the site is good.
Greg