4.6 V8, 4 speed auto...

The transmission won't shift from second to third when engine is cold
first thing in the morning.  The only way I can get it to shift is to
take my foot off the gas and it will drop back into third. Later in the
day, if I cold start, I don't have this shift problem.  It is only
first thing in the morning.

Also, after driving about five miles, any time during the day, the
"Overdrive Off" light on the gearshift will constantly flash on and
off.  It doesn't stay continuously lit, like it would if the
overdrive were normally shut off.

While this is happeneing, if I push the Overdrive Off/On button, it
feels like the truck is still kicking in and out of overdrive normally.

If I stop the truck and turn off the ignition, then restart it, the
Overdrive Off" light stays off until I drive about five miles again,
and then it comes on again...

The local Ford dealership charged me $95 for a diagnosis and told me
that "a little hydraulic piston inside the transmission is cracked.
That'll be $2950 for a rebuilt transmission." to which I said "Later,
guys".  Looking for a good transmission shop now - we have just moved
to this area and are still dealing with moving expenses - but I was
wondering if any of you have had these symptoms yourselves and what
they might indicate...

Thanks,
W