The surging is probably a lean condition. Try richening up the CO adjustment a little bit. You can always turn it back.
If you have an O2 sensor disconnect it before setting the CO.
Some cars run better with it left disconnected.

Okay, tried richening it up just a little bit, but then I get the problem again where the idle drops after revving. Seems like there's no way (just through mixture adjustments) i can get both problems to disappear at the same time. Any ideas?

set your idle up at about 1000 and see if it goes away.

There is an adjustable fuel pressure regulator built in to the CIS head. You could try raising the pressure there and then readjust the idle CO to compensate.
You can always put it back to where it was before if you don't like the results.

You should get or borrow the fuel and control pressure gauge set up with diverter valve for CIS or you'll never know what you're actually doing.

A wide band AFR kit like the Innovate LC-1 and gauge is a big help too.

Okay, I ordered the JC Whitney CIS gauge today, when it gets here I'll hook it up and see where I'm at. In the mean time, I'll try raising the idle speed like snbush suggested, I'll take a look at the timing, and try a couple of other things, I'll report back any findings. In the mean time, if anyone else has any more recommendations, please post them.

Progress...
 

Today I put a timing light on the car and found the ignition was advanced too far. I brought it back down to 5 degrees BTDC. Instantly the car idled smoother and more consistently. I then adjusted the CO% to 3.5, and the results... great! The car idles smooth, accelerates linearly, doesn't surge, and all in all runs great. I did notice while timing it that the timing mark would occasionally bounce around. There maybe something wrong with one of the advance springs, maybe bouncing around in there. Right now, it is running smooth which is a huge relief. I also noticed while on the test run that the RPMS wouldn't come straight back down to idle all the time. After I let off the gas, there were times it would hang at around 1500 RPMs, for a second or two, then come back down to idle. Could it be related to the distributor? As soon as I get some time I'll have a look at the distributor, but right now it's 10 times better than before. :D Thank you everyone for your help so far, I'll post my findings in this thread as they pop up.

I think your next project would be to clean up the internals on that dist. Gunter has a good DIY on this. My car had the same "hang up" when warm and I found the advance weights sticking as the clearances tightened up with longer running time and higher ambient temps. Your bouncy timing points to this also.

good luck

Every car I've ever put a timing light on with a mechanical distributor has bounced around a degree or 2 at idle. They usually become more stable as the revs increase.
Unless you can feel the center shaft of the distributor is loose like worn bearings or anything else inside seems to be too loose or worn out I wouldn't worry about it.

Great results!
Did you check maximum advance at 6000?

The engine speed hanging @ 1500 for a second or so before dropping to idle speed is a normal part of the function of the decel valve. If you have the one on the driver's side of the engine w/ a hose off the top, you can adjust it via the screw that surrounds the port for that hose. Some guys plug the line altogether so there is no hang.

Reopening this thread again as I'm still having issues with the car surging during off-idle operation, and the rpms dipping down after letting off the accelerator. I have the warm idle set to 1000 rpms because if it's set any lower, then when the car is cold, the dipping after acceleration will cause it to die.

I finally got around to checking the CSV to make sure it wasn't leaking, which it's not, and checking the control pressures. The pressure were a little high, but I thought I'd run the numbers by you guys to see what you thought:

System Pressure: ~70psi

Control Pressures:
Cold (engine off): 25psi
Cold (idling): 29psi
Warm (engine off): 47psi
Warm (idling, vacuum line connected): 54psi
Warm (idling, vacuum line disconnected): 48psi

I also performed the residual pressure test and it passed with flying colors.

Do you guys have any ideas?

Did you check your control pressures against the chart? @ what temp did you get your cold readings? Do you have the 945 0r 069 WUR?

Maybe someone can help here, but aren't you supposed to have 30 -35 deg advance @ 6000rpm? Did you try that? Was the vac line disconnected or not?

If all the above is OK then maybe your dizzy as you suggest. Are you sure it is tight and not rotating?

Check your timing specs some cars are 5 degrees ATDC...

surging and dipping = TOO RICH
the slow return to idle could be the decel valve.
you should see about a 1 bar drop in presure when the vacuum line is removed from the WUR.
is 3.5% spec for your car?
if you want to lean it some more, try turning the mixture screw CCW in small increments until it stops surging or dipping when you blip the throttle. then, look at where the allen is pointing, turn it about a half turn CCW and then CW back to where it was. i have mine set so it is just on the edge of wanting to dip down in rpm when i let off the gas.

Also maybe pull your injectors out again and re-check the pressures. I had one that started opening at a real low pressure and fouling out the plug after it I cleaned it... easy to check.