I found this interesting article
http://www.superstang.com/horsepower.htm
This is interesting about dyno readings....
Short version: The higher the RPM of the vehicle the more parasitic drag that exists inside the transmission and rearend, regardless of acceleration rate. Therefore more power is spent to spin the drivetrain at high RPM.
Another thing to note: The reported HP (flywheel -or- rear wheel), is highly dependent on acceleration rate. The higher the acceleration rate, the lower the reported HP. So on a dynojet-type dynamometer (fixed inertia), higher horsepower will accelerate the drum quicker, which will increase drivetrain inertial losses, thereby reporting even lower RWHP numbers. This means that the percentage of horsepower drivetrain loss through a Dyno-Jet type dynamometer will actually grow as horsepower increases at a rate larger than a "loaded inertia" dynamometer.
This deserves more explanation. Typically you will find a car that produces 200 horsepower on a Dyno-jet (fixed inertia) will only produce 180 horsepower on a Mustang (loaded inertia) dynamometer - 10% less. However as horsepower increases the numbers (as a percentage) will become closer. So a vehicle making 800 horsepower on a Dynojet may only make 740 horsepower (7.5% less) on a Mustang dynamometer. The percentage has become closer. This is the result of time being reduced (with the dynojet dynamometer) in the equation of work over time.
Real World Example:
(from Muscle Mustang & Fast Ford Magazine, Febuary 2003, Article titled "Mass VS. Myth" by David Vizard)" the example is very interesting - but I don't know how to copy the graphs....
"In the article they dyno'd a car in both 1st gear and 4th gear (this was with a manual transmission). Normally all dyno runs are done in whatever gear provides a 1:1 ratio through the transmission (3rd in Automatics, 4th in Manuals typically). What was amazing was how much less rear wheel horsepower was generated when the car was in first gear. Take a look at the chart and the authors notes (quote: "Because of the rapid rate the engine internals and components back to the wheels are accelerated the power absorbed is greater. As can be seen the difference in rear wheel output between first and fourth gear is an amazing 85 hp and a staggering 140 lbs.-ft of torque.")
Real World Example #2: (added 9/29/2003)
The November 2003 issue of Car Craft has a great article titled "The Brutal Truth" by Jeff Smith (page 40). In the article they place two engines on an engine dyno and then dyno the engine again once it is installed in the vehicle. One engine is a 357 cubic inch Ford Windsor engine and the other is a 455 Buick. The Ford 357 was installed in a 63 Comet using an AOD transmission and Ford 9" rearend with 3:50 gears (exact combination of drivetrain in my Mustang except my AOD is a non-lockup which means it is even less efficient or should lose even more horsepower). The 455 was installed in a 70 Buick GS with a Muncie 4-speed and a 12 bolt rearend with 2.73 gears. The point of the article was to show how things like a belt driven cooling fan or poor vehicle exhaust could affect the engine output in the vehicle but was equally as valid for showing drivetrain induced power loss.
Without reading any further it would be my assumption that the Ford combination would lose a larger percentage of power through the drivetrain. Not only is the AOD an Automatic it is also a 4 speed Automatic that has substantial weight and rotating mass. The 9" rearend is also larger and heavier than the 12 bolt Chevrolet.
The Ford 357 produced 371 horsepower on the engine dyno at 5,000 RPM. On a 1990 Mustang that came stock with an AOD and a 3.27 8" rearend (more efficient than the 9") the rear wheel horsepower is typically 180 hp. That represents a loss of 45 horsepower given the rated 225 flywheel horsepower on that vehicle. Using this 45 horsepower and even giving it another 5 for the 9" rearend the 357 would have produced 321 peak horsepower on the chassis dyno. Well, it didn't! Even after removing all the factors that could have contributed to extra power loss in the vehicle (removing the belt powered cooling fan) the chassis dyno only showed 283 hp. In fact over the entire power curve the difference between the engine dyno and the chassis dyno was 24%. This provides more evidence that the power loss through common drivetrain remains a percentage even as power is increased rather than remaining a static loss value.
The Buick 455 produced 329hp and made 280 through the drivetrain at 4,500 RPM. The average drivetrain horsepower loss in this vehicle was 18.3%. This can be accounted for by the fact that the 4 speed Muncie is more efficient (require less power to accelerate) as well as the 12 bolt rearend being more efficient than the 9".
now to contradict that....

the same article closes with...
"What's the Loss?
When we began to contemplate flywheel horsepower figures for our different combinations, we bantered about some concepts that can be deceiving. Most enthusiasts have been exposed to the idea that flywheel and rear-wheel horsepower can be equated by factoring in a given percentage for drivetrain loss - the drag that occurs from all the items between the flywheel and the rear tires. You may have seen factors such as 15 percent for stick-shift cars and 25 percent for automatics, applied by dividing rear-wheel horsepower by either 0.85 for stick-shifts or 0.75 for automatics.
Now take a time-out and consider the following. Our original baseline indicated 195 hp at the rear wheels, which when divided by 0.85 equates to 229 flywheel horsepower, and implies that the drivetrain is absorbing some 34 horsepower. On the other hand, our combination of blower and traditional bolt-ons netted nearly 340 hp on the Blood Enterprises dyno, which when divided by 0.85, equates to 400 flywheel horses, and implication that the drivetrain is now absorbing 60 hp.
Nothing has changed between the flywheel and the rear wheels on our '93 LX, so does it make sense to figure the drivetrain is now absorbing nearly twice as much power? Such a concept just doesn't jibe in our little brains, so we asked a couple of people in the biz what they thought. Lee Bender of C&L Performance and Paul Svinicki of Paul's High Performance are both well versed in evaluating Mustangs on the dyno, and they both agreed that extrapolating drivertrain horsepower loss via percentages is flawed. Lee believes that the stick Mustangs experience roughly a 35hp loss through the drivetrain, whether they make 200 hp or 400 hp. He did explain that ultra-high-powered vehicles - typically race cars - can be and exception to this rule, but that's a topic for another time. Interestingly, a 35hp loss for stick-shifted drivetrains is strikingly similar to the difference between Ford's horsepower ratings and the rear-wheel numbers we've observed on dynos across the nation. Hmmm..."
So we're back to square one - confused?