First of all, for your application, (or any other performance application) a low end converter is not the way to go. A typical low end converter is just that, usually inexpensive, and for stock or very slightly modified engines.
The company I work for recommends that for any application that is over 400HP, the converter should be built to the same standards as a race converter. That is the internal componets will be furnace brazed (not hand brazed) where applicable, torrington bearings (3) will be used, anti-balloning plates used front and rear, and all mounting areas reinforced.
In other words, MAKE THE DAMN THING HEAVY DUTY. When you build lots of horsepower, the rest of the drivetrain must be built accordingly. Too many times I've seen or read were the owner has spent time and money to build a strong engine, and then cheaps out on the converter, and then will bitch when the converter fails.
From the photo, it appears that B & M used a single bearing on top of the stator of the converter (typical on a low buck unit), and the bearing came apart. If you could email me a couple of better photos, I might be able to tell you something else.
Your transmission will have to come apart and be cleaned thouroghly, as well as your valve body. You say the pump is also shot. Is it for sure?Send me photos, and let me have a look at it. Unless the pump gears inside the pump are damaged, and then did other damage to the pump body or the pump stator, I'd guess that it is just full of junk to be cleaned out.
While you've got the trans apart, it would probably be a good idea to rebuild the unit. Just remember to clean everything, as the metal from the converter will be thoughout the entire system. Clean the transmission cooler in the rad(if you've still got the system hooked up), and if you've got an auxillary transmission cooler hooked up, toss it away and replace with a new one.
Like all converter suppliers, B & M build different quality converters to meet different demands. IMHO, too often converters are purchased for $$$ reasons, and are not properly applied.
By the way Dave, the "MERCURY" you mentioned is aluminum. It may be coming from the stator in the converter or the aluminum planetaries used in the transmission.
transman