Before going into detail on the problem, I will say that my H2 has the stock 6.0 engine and I replaced the trans, a 4L65E, with a rebuilt "improved" model from O'Reilly about 35k miles ago - it has the aluminum (vs plastic) pistons, and new "improved" servos.
My problem started with a surging/bucking action with the cruise control on. Using the throttle, it was fine. About a month later, I noticed the speedo is oscillating from 5 MPH below to 5 MPH above my actual speed. I pulled the battery and had it tested - although it would start the engine fine, it failed under a load test, so it got replaced with a new one. I thought that the current jumping around may have caused the odd issues. That apparently wasn't the issue, because not long after, the problems worsened. I have had and still have no CEL but my on old craftsman scanner I did get a P0502 at one point.

It now revs way up to 3500 to 4k RPM before kicking hard into 2nd and once she hit 3rd gear, it seems the clutch is engaging, because you can feel the trans disengage - it is not slipping. Then the speedo and odometer stopped working - all other gauges are good. I thought this was a VSS issue, so I installed a new VSS sensor - I didn't like the look of the inside of the connector, so I replaced it too. NO CHANGE. Speedo dead and no odometer movement.
Seeing many people found a shorted wire, I measured resistance to ground on the VSS connector. The green wire reads a solid short to ground and the purple was infinity. I pulled the wiring harness and did a full inspection - all is good. I pulled the ECU connectors and vetted the wires to the connector (Green side straddling the gap in the center) and ruled out a ground short. I also installed ANOTHER new VSS sensor (genuine GM part). I have checked every single fuse in the vehicle - all good.
If I kept the gear selector in 2, it seemed to work fine, but now I am questioning that as well because on a half mile test last night, it seemed I felt 2nd slipping.

So now I have questions:
I get no voltage reading to either pin of the VSS connector. Shouldn't one side have a +12 on it? Does the H2 have to be in drive for this +12 (or whatever voltage) to be applied?
Is it normal for the green vSS wire to have a ground on it?
If the VSS connectors should have a +12 (or some other dc value) then I assume the ECU applies that voltage, based on other inputs. Where does this voltage feed in to the ECU and under what conditions should it be applied?
I have ruled out an obvious wiring issue and I'm trying to rule out the ECU now.

I may be off base here and looking in the wrong areas, but it sure seems to me that the cruise control acting up, then followed by the speedo/odometer failure is not a coincidence. Knowing that the VSS goes directly to the ECU before hitting the cluster, tells me the problem is most likely in or around the ECU.
I'm almost thinking that inconsistent current or spikes could have corrupted the flash on the ECU.

When I had the VSS pulled, I stuck a finger in and felt for the reluctor ring in the T case, and it is smooth - is it supposed to be? I would think it would have teeth of some kind, like a hall effect sensor.
I changed the Tcase fluid with Synthetic Dex III when I first got the H2 at 105k miles, and again about 15k miles ago with the Lucas synthetic Dex III. nothing more than fine pieces in there at either change.

My next step is to take it to a shop with a good scanner/analyzer that can command 3rd gear and TC lockup, in case I am looking at a trans problem in addition to something else. I read that in another thread here about what to look for, but I lost that thread and CANNOT FIND IT AGAIN!

 

2003 H2, with 152k miles on the odometer now. Trans (improved 4L60E) replaced at 116k.

 

There's a lot of info and questions, so to help discussions attached is the full GM P0502 fault description and circuit diagram of the VSS (Vehicle Speed Sensor) you may get some clues from these.

Your questions:-

1. I get no voltage reading to either pin of the VSS connector. Shouldn't one side have a +12 on it? Does the H2 have to be in drive for this +12 (or whatever voltage) to be applied?
2. Is it normal for the green vSS wire to have a ground on it?
3. If the VSS connectors should have a +12 (or some other dc value) then I assume the ECU applies that voltage, based on other inputs. Where does this voltage feed in to the ECU and under what conditions should it be applied?
4. When I had the VSS pulled, I stuck a finger in and felt for the reluctor ring in the T case, and it is smooth - is it supposed to be? I would think it would have teeth of some kind, like a hall effect sensor.

Not an expert per-say but I do have the following comments:-

1. The sensor acts a voltage generator when the transmission is driving, so when the vehicle is stationary you will may see little or no voltage, certainly not 12V, it doesn't work that way (here
   is a similar topic
   )
2. One would expect to see little no voltage on the Green wire since this is the "low side" of the sensor. With the PCM disconnected there should be no direct ground connection, however the PCM may provide a path to ground when connected (value unknown)
3. Answer the same as for 1, the ECU (PCM) detects the voltage produced by the sensor rather than applying a voltage to it.
4. This is outside my experience on transmissions, however if there normally are teeth, where and why did they go?

Good idea to get someone with a GM Tech2 scan tool to take a look and provide some diagnostic info

Recently a local owner here in the UK had issues with gear changes, long and short he changed the transmission but still had the problems (expensive) He was about to hack the wiring harness when it was suggested he change the PCM - problem solved. He bought a refirb (needed his VIN) but compared to all the work he'd done it was a small price ( insurance really)

Hope some of this helps....

 

Thank you, oceanbrave! Yeah, that is pretty much what I had learned. I ordered a CD with the Hummer H2 GM shop manual on it - and it's a doozy - 12,000+ pages. Not real happy with how it is set up, because it is in PDF format and there is no table of contents. I was able to search it out by section, though. I copied the wiring diagrams and troubleshooting flow charts for the VSS and speedometer problems. The added bonus is that my printer went out, so I couldn't just print them out. Anyway, I followed the flowcharts and determined the problem was at the transfer case. I took an extra VSS connector and measured between the wires, while a rear wheel was turning - no output. I changed VSS sensors and repeated - same outcome. I then ran extension wires and while traveling at approx 40 MPH, I measured between the wires and a combination of from each wire to ground for AC and DC. I got a whopping .030V AC (thirty thousandths of a volt) out of it. I then pulled the VSS sensor and stuck my pinky in there and encountered an absolutely smooth surface - ZERO teeth.
I have to assume that something happened to the tone wheel. I'm aware of the way these hall effect style sensors work and so I cannot imagine that the tone wheel can sit beside the sensor - I'd think the tone wheel would have to sit under the sensor.
So my question is - can someone take a 19MM socket or wrench, shinny up under their H2 and pull that sensor, stick your pinky in there and tell me if you feel the teeth. I searched all over the interwebs and I couldn't find any information on what the clearance is supposed to be between the tone ring and sensor, how exactly they are oriented or anything, but I'm nearly certain that this is the problem - the tone wheel either grenaded or slipped out of place, somehow.