Well....I have figured out what works for me. Not sure if this is how it should work for everybody else so please keep that in mind.

727-100/200 loadout
75% passengers
60% cargo (positions 1,3 and 5 in front/rear bays)
Takeoff fuel:
30/30/30 to 70/30/70 (this is where I am at usually)
Start flight.
Reload aircraft (to get sounds). Do not want to use the 707 fix.
Set altitude
Initialize V-One gauges (no other mods)
Set flaps to 5 or 15 degrees

The odd part : I do not touch the flight director.

Release brakes, apply full throttle.
Rotate per schedule.
After rotation use the trim controls to maintain a pitch of 15 degrees maximum. Once the pitch is stable (ie. requires no more input) I engage A/P.
Bingo  . . . no more diving on A/P engagement.

My conclusion :

either:
I am doing something wrong
or
the flight director itself or it's connection to the A/P is buggy.

This will work for me. YMMV.

Curious to hear what other people are seeing.

Once again the 737-100 F/D and A/P work just fine.

Thanks