I ran in to the same problems when I first installed mine and by hit and miss I got it to work. First is the thermostat in the Air box working? If the door to the preheat tube is open and pulling in heated air you will get detonation thus the system will drop the boost to stock. Two is the bolt that runs through the knock sensor torqued to the correct foot pounds of torque. Third are you running premium or weasle piss gas. If you get a bad tank of gas this system will let you know real quick. With 89 octane I can't get the boost over 9 psi, 10 on a cool morning.
If you can find a pick and pull get a new complete wire for the knock sensor. If it needs to be cut, cut it at the base of the control unit. I wouldn't think that the wire would be the problem but it's better to be safe instead of sorry. As far as the hitting the cut out, it is caused by a slight over boost as the turbo spoils up. The turbo wheel inersia causes the boost to jump 1 to 2 psi over your set boost level. It will settle back to your set level with in a second or two as the waste gate kicks in. So you will need to set the overboost switch a little above your set boost level.