I have a 396 stroker with a holley intake fuel pump. With the vaccum hose connected to the regulator the car idles @ 42psi. If I gradually give the car fuel, the fuel gauge will drop to 36psi, then when I open the throttle wide open it will jump back up to about 42psi maybe a little more. Should the fuel pressure drop like that?

 

The regulator makes changes to the pressure based on engine vacuum (load). Less vacumm=greater perceived load. You may not be getting much vacuum at idle with the cam you are running and when you gradually increase throttle the vacuum probably goes up. The higher vacuum will make the pressure go down. WOT=the least amount of vacuum and should give the highest pressure.

You could monitor your engine with a vacuum gauge to verify what it is doing in this regard. The same could be done with a scan tool and observing the MAP readings.