Sounds like you may have a faulty Oil Pressure Switch. It's located at the rear of the engine.
That switch can't detect the difference between 4 and 3 and 1/2 quarts.
There is something goofy about the level of the oil in the pan. Something is getting unported starting at 3 and 1/2 low. But I've rebuilt many small block Chevies and the oil pump pick up on the bottom of the pan should be ok down to 1/2 a quart.
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When the oil pressure drops to "0" according to the oil pressure gauge on the dash, does the engine start to make noise as if it were out of oil?
Ok... so it in fact is actually loosing oil pressure... its not just the gauge saying the oil pressure is getting low...correct?
Do you have a VIN "W"
Correct. The pressure goes down when the oil level gets below 3 and 1/2 qts.
There is a W at about the 8th character in the VIN.
Well, if the oil pressure is in fact going low when this happens, then you either have a bad oil pump, plugged oil pump screen or bad engine bearings loosening up causing low oil pressure. The most common thing that has been known to happen with this engine is the cam bearing slipping off. You can remove the intake manifold and look down into the valley to see if one is hanging out.
If the the cam bearings are ok, then I would check the oil pump and screen.
The condition of the cam bearings would not vary with 1/2 qt of oil
Since it is fine with a full crankcase, I'll not be taking things apart. Maybe the pump is tired and the slightly higher pressure of a full crankcase makes it work ok.
But it is like night and day. When the crankcase is full the oil pressure behaves like a new car. When it is down a little it loses pressure.
When you reply to this I'll stop bugging you and hit the accept button.
I would agree. SInce this only happens when the oil starts to get a little low, I would not pull it apart either. I would just keep the engine oil full.