My 99 Taurus SE automatic 3L has developed an odd, intermittent tranny
problem.  It stays in 1st gear often until the tach hits 4k or 5k.
Then it lurches into second.  The speedometer locks at zero, and the
Service Engine light comes on.  Then, after a few clicks or miles,
everything will suddenly return to almost normal (still seems to have
a little trouble downshifting on hills, although this might be my
imagination).  The problem sometimes happens when the car is cold,
sometimes when it's hot.  Sometimes, it'll happen when I've stopped
for a traffic light.  Some days are problem-free.

I took the Taurus to a trusted mechanic, who used a scanner to read
the error code and -- you guessed it -- determined the problem to be a
faulty Vehicle Speed Sensor.  He replaced it with a brand new unit.
The next day, however, the problem recurred.  The mechanic suspects a
sticky solenoid is contributing to the problem, but he said the only
real solution was to replace the entire tranny for $3,000+ which I
don't have.  He added that a short-term fix would be to replace the
valve body for around $1,500 (which I also don't have), but he said
his experience with Tauruses was that another piece, such as the
torque converter, would likely fail soon and I'd wind up paying for a
rebuilt tranny anyway.  I've put the thing up for sale, recommending
it for mechanics only, but haven't had a single nibble.

Does the mechanic's advice sound solid, or should I have the dealer
look at it?  Dealer wants $133/hour, so I'm not taking this decision
lightly.

Advice/opinions appreciated.