If the problem is the gear position sensor you can pick up a brand new one for about $50. Not sure how that is happening, pull the clutch basket, remove the sensor, and take a pic of the contacts for us to see.
There are 3 wires coming from the GPS sensor, red, black, and blue. The blue wire is the neutral wire. When this wires becomes ground the bike thinks it's in neutral. Trace this wire and make sure it's not frayed anywhere or pinched really hard or something and grounding out. If this was the case I would think it would work real intermittent though and not as you are describing.
Another possibility would be if somehow the neutral 1st and 2nd gear pins are connected together somehow, small piece of metal or something, but that sounds pretty odd also. This is what the sensor looks like.
And if you are already removing the sensor, I can make you up a gear indicator if you are interested.
Greg
www.boostbysmith.com/Videos/Blue.wmv