Sounds like you have a lovely electrical gremlin, did you check the pins in teh harness side? Nothing loose in the CPS sensor hookup?
I believe on LB7 motors there is a bale connection up on top near valve cover, check that, and all of em really for anything corroded or loose.
I would def verify that the ECM is seeing rpm, and then verify you have correct voltage at sensor. If those check out, you may have a bigger issue.
http://www.dieselbombers.com/chevy-g...on-sensor.html