That little "chip" you call, is not a chip, it's the SPOUT connector. All it does is break the contact from the PCM to the distributor to take computer advance out of the picture, and run the car off of base timing at which you set with a timing light and turning the distributor. Dan, it sounds more like you need to figure that out before going any further.

 

Make sure they resurfaced the bottom of the heads before putting them in to make sure there are no leaks.

 

Before you pull the old distributer out, take the cap off and mark on the engine were the rotor and the TFI is pointing. Pull the distributor out and set the new one in, line the rotor and TFI up with the reference points you made. Put the cap and wires on, unplug the spout, start car, set the timing were you want it 10* is factory but you probly want about 14*, plug spout back in and timing should advance close to another 10*