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you have to remove the wires located near the shifter assembly and run it to the reverse light sensor on the tranny (as far as i know).
this is correct.
an auto trans has the reverse light switch off the gear selecter, not mechanically off of the reverse gear inside the trans itself.
a manaul trans has a switch inside the trans that gets depressed whenever you put the car into reverse. you need to connect the gear selecter wire to the new in-trans reverse switch wire.
then you should be good to go.
have you corrected the wiring so you can pull your key out too?