High on a bluff above the James River, stately shade trees and manicured lawns give the Lynchburg Training School and Hospital - Virginia's largest institution for the mentally retarded - much the appearance of a rural college campus.

Inside, patients, including a number from Northern Virginia, move about the wards and dayrooms freely, sometimes conversing with one another. Others sit silently in wheelchairs all day staring vacantly into space.

In an institution that five years ago was so full that patients had to sleep on mattresses on the floor, overcrowding has been all but eliminated, and the sleeping and living areas are kept antiseptical clean and free from smells.

Yet, for the last year, the institution has been rocked by internal disputes that have escalated to the point where, according to some staff members, they are seriously interfering with patient care.

One black employe has complained that she came to work with her hair in corn rows and was ordered by a supervisor to take them out and comb her hair conventionally. She complied with the order and was then docked an hour's pay for being away from her regular duties.

Other employes have complained of being forced to sign out each time they leave their desks, even if it's only to walk down the hallway. Still others complain of being given conflicting orders by supervisors.

A state legislator said he has heard complaints that unqualified people are given assignments for which they lack training or background, that there is fear of retaliation for initiating grievance procedures and skepticism about the promotional system.

This month, a legislative study commission ordered an investigation into conditions at the training center after a key staff member complained at a public hearing of declining quality of care and poor morale.

"Resident care, training and treatment programs are progressively deteriorating and staff morale is at an all time low," Dr. Lucy Gibbs, chief of physical medicine and rehabilitation, told the Study Commission on Mental Health and Mental Retardation.

Specifically, Gibbs said, patients are constantly transferred from one unit to another, unnecessarily and without explanation: staff members are harassed and orally abused by supervisors and are required to spend an excessive time on paperwork and in staff meetings when they should be taking care of patients.

Since she spoke out, more than 400 of the school's 2,500 employes have endorsed her charges in petitions turned over to state legislators and a local newspaper, the Lynchburg Daily Advance.

At the center of the controversy is Dr. Ray Nelson, director of the training school for the last five years and the target of most of the criticism.

"It's really a little problem that has been blown out of all proportion," says Nelson. "I'd stack this institution up against any in the country."

But State Sen. Elliot Schewel, (D-Lynchburg) said Gibbs' charges came on the heels of scores of complaints made to his office by school employes over the last year. "Dissatisfaction and unhappiness seem to be pervasive," said Schewel, adding that a breakdown in administration and communications seem to be at the heart of most of the complaints.

Brack Stovall, an aide whose responsibilities include caring for wheelchair patients, said, "Most of the direct-care staff support what Dr. Gibbs had to say."

Named to head the investigation into Gibbs' charges were Charles H. Osterhoudt, a Roanoke lawyer, and Dr. Thomas Stage, assistant mental health commissioner with the Department of Mental Health and Retardation.

The probe will begin, Osterhoudt said, with a public hearing at the training school Aug. 2 when any interested person, staff member, parent or patient will be permitted to testify. After that, he said, the investigators will chart their own course.

"We may want to talk to people privately, we may want to tour the institution or part of it, we may want to call in some experts," said Osterhoudt.

In the meantime, the training school has split into two camps. Gibbs is convinced that unless the investigation substantiates her charges, she'll be ousted from her position, and she says her informants tell her Nelson has directed his staff to prepare their defenses.

Nelson won't discuss specifics, but he does argue that the training school is in better shape now than it was when he arrived five years ago.

In that period the patient level has dropped by 1,400. Most of the borderline or mildly retarded patients have been discharged into their communities, in line with a nationwide trend.

Now, between 90 and 95 percent of the 2,200 patients at the training school, including a number from Northern Virginia, are severely to profoundly retarded. Their needs for care range from those who are unable to feed and clothe themselves to those who can cope with most daily functions and are given freedom to move about the grounds unsupervised.

Many have additional handicaps such as limb deformities, spasticity, emotional disturbances, deafness and blindness, and require round-the-clock care.

What this means for the staff, said Nelson, is that the patients that the training school has now are more difficult to care for than the ones five years ago, and this, he suggested, could be the cause of some complaints.

"They may not be happy because I'm making them work," said Nelson.

Gibbs, interviewed in her office at the Training Center, said the frequent patients transfers are particulary upsetting since it takes a while for patients and staff to get used to each other.

In one recent incident, she said, a group of deaf and blind patients was transferred to a section where no staff members had any experience working with the deaf and blind. In another, a group of wheelchair patients was transferred to a section where no one had any experience working with people in wheelchairs, she said.

Red tape and paperwork, she added, have become overwhelming.

"I have one physical therapist who spends 30 hours a week writing reports and evaluations and the other 10 hours in staff meetings. She never does any therapy."

Petitions in support of Gibbs say the signers "hope these areas of concern will be investigated and corrected . . . " and promise to support Gibbs in pressing her charges.