I have a 66 Mustang and according to the shop[ manual the backup switch is located on the transmission. Has anyone ever replaced this and where exactly on the tranny would I find it?

It is very easy to replace it is on the drivers side located where all the shift linkage is at you will be able to locate it easily.

I concur.On Automatics it's part of the Neutral safety switch on the drivers side. For a manual, it's where the shift linkage is on the back of the shifter. It is a seperate switch and wiring with a plunger looking rod on it. Either way it's a cinch to change. Disconnect the wiring plugs and unbolt the switch.