I seem to be unable to get into 3rd gear at all. Wont upshift into or downshift into. Also, I try to use the shifter to force it out of 4th, but it just shifts to 2nd. I noted some small chips in the pan a little while back. Am I right in assuming I am due for a rebuild. Its at 147k miles. Talked with some shops around here, go two quotes around $1500 for the full rebuild. Valve bodies, 4th spindle (2002 was the last year before the hardened fix if i recall), the whole shabang. 3 year warrant. Is there anything I am missing or I should have checked out first? Thanks in advance.

Where those chips tannish/bone color?
If so it is possibly a clutch thrust washer, I am not a transmission guy though, so that is just a guess.

The chips were all dark if not black in color. Forgotbto include that.