I seem to be having somewhat of a similar problem lately. I'm running a Howell TBI on my 89 4.2 YJ and am having a backfire when decelerating, the engine also seems to be running very rich.

Speaking with the tech support from Howell, he stated that I should check the fuel pressue and insure that it's at or near 12 psi. He stated that there is no adjustment to lean out the mixture.

I don't have the surging problem you mention but I do have the backfiring. The ALDL isn't indicating any problems when I check for any codes.

Don't know if any of this helped but I sure do need to try test my fuel pressure.