What would make the gauge show pressure when there is no oil?
Oh, about 2 months ago, the converter plugged up and the truck backfired and blew the gasket out of the valve cover, but not to where the cover warped or leaks oil. We cut off the converter,it smoked for a few days, ran really rough and then cleared up and I haven't had problems with it until last night. After the oil was put in, it started smoking and running rough again. We didn't replace the muffler so i assume that is most likely plugged again, causing the smoke and rough running.
Oil filter remotely mounted? Haven't saw one of those since my 53 Chevy. I would look at what is moving the oil from the engine to the filter and back. Possible leak there. 60-80 psi is way too high. But gauges as they get older are not very accurate, and they can stick. Is the dip stick original? Was it changed for a shorter one? Without looking at the ride, it's only a guess at this point. If you plan to keep it, tow it in to a good mechanic and have him take a leak at it.
Here we are talking about at least 2 problems. They may be related. The Oil problem, air in your oil line will still give you a pressure reading although it is False. The lack of oil giving you the bearing knock is proof enough. Now, if you run your engine low on oil it runs at a Hotter Temp and causes wear and heat damages. Now remember this, the cat converter was attached and was removed because it was believed to be plugged. If it was then there is a good chance of Carbon Deposit Build Up in the EGR System. What is the Carbon? It's your engine oil cooked from heat. What is your EGR System? Exhaust Gas Recirculatory System. What removes Carbon? Heat. What causes the re occurance? Lack of Oil.