Welp, I guess it was destined to happen. Rather than just lurking around, I had to register to ask a few questions for input from the knowledgeable people here.

Equipment:
1998 Dodge Dakota Sport 4x2
3.9L V6 Magnum
42RE 4-Speed Transmission
8.25 Rear Axel One-Wheel-Wonder

Recently bought the truck about a month ago, everything was fine outside of a few 'neglect' things. (I assume it was some young punk who owned it, when I bought it I spoke with his wife, owner was at work.) As been told by the crappy black spray-painted rims (over the clearcoat)... I like to think I saved this truck from an untimely demise.
But a tune-up later with some fresh wires, plugs, cap and button, oil change, it ran good. Occasional lope when at a stop sign (IAC common issue, haven't cleaned it yet), and Brake/ABS/No Speedo under 30 (rear diff sensor, fixed 2nd day).

Oil change was a pain... Apparently they took it last to a Valvoline oil change, which didn't have a proper filter, so they stuck one that fit the threads. Filter itself was half the size of a Fram PH16, and wrenched down hard enough to mush the gasket flat and scrape the filter into the seat... (took 4 hours and 3 guys to get the filter off with how tight it was.) Engine runs like a demon now.

However, it does still seem to have some issues, never any major problem codes. Only codes I get are Random Misfire, Misfire cylinder 1, 3, 5, and only when I run it 3000~4000 RPMs. Also has some harmonic vibration at 65~75MPH, goes away at 80MPH, putting in neutral still had the vrr-vrr-vrr vibration so I assume maybe the 7 year old tires on it, only standard balance, not high speed one done to them. About 40% of the time when starting it, the Brake/ABS light stays on, but doesn't seem to affect much (turning truck off for a couple minutes they go out), and only twice has the pedal became mushy and almost to the floor, no fluid loss, turning the truck off for a minute cured it. They did say the truck had been sitting for a bit. Burns tires in reverse, not in drive (well it did a few times after the tune-up, mostly does a powerful take-off instead)

All of the listed stuff I'm sure would work out as it got ran, tire changes, etc... However onto the more pressing matter that every Dodge owner loves. Transmission. When I bought it, had no problems, shifted fine, locked up fine, etc. Last Friday, I noticed it didn't go into TC lock, but shifting was fine. Checked fluids, level was fine, maybe a bit over, pinkish-clear, no burn smell.

Saturday, I put some new rear shoes and spring-kit in the left only (didn't get to the right). Had to basically hammer the drum back on, I assume the pads were too thick. No real problem, right? (parts place decided to close early so I couldn't get the drums turned like I wanted...) Drive it around a bit easy to get the pads a little worn, wheel heated, but it loosened fine and brakes are working great. The speedo was off a bit (factory tires are 215 75R15, has the optional XL 235 75R15s now, was throwing off speedo ~5mph over 50mph), so I had my brother reprogram the rear pinion to match and the speedo is now accurate.

(TL;DR start here to skip story)

Now here's where the problems began... On the way home, the truck seemed to not want to shift out of 2nd gear. Even nearing 4000RPM, it didn't want to upshift into 3rd, unless I let go of the gas, pushed it into neutral, then back into drive. It'd immediately drop into 3rd, then 4th without issue. Problem would only repeat if I came to a complete stop, even if it dropped to 2nd on a near-stop, it'd shift fine unless it was a complete stop. About 20 minutes later, hit the interstate, just trying to cruise it home at about 60-65. About 5 miles down the interstate... O/D Off light comes on, drops to 3rd... grand, can't turn O/D back on. Drop speed to 50MPH, get it home 15 miles away. Stopped at home, turned it off, back on, O/D light goes off and I get O/D back. Didn't drive the truck Sunday, and today decided to take a test drive. Starting out, it seemed fine, shifted from 1st to 4th with no problems, etc. After ~10 minutes when the transmission warmed up, it began the same issue, not wanting to shift from 2nd. Did the neutral-trick to make it upshift (I had just got off the on-ramp on the interstate going 1.5 miles up to another exit).... aaaand....

The main issue happened, suddenly there's a whining grinding noise from the transmission. Pulled over, stopped, turned it off. After turning it back on, it has no problem actually shifting into gear, no hesitation when I flip from Park to Reverse, Neutral, Drive. However it seemed like the torque converter was slipping horribly and not shifting (or I didn't want to push it too hard... one of the two). Limped it at 2-3k RPMs 25~30MPH 2 miles home.

The noise happens in Reverse, Drive, AND Neutral, it doesn't happen in Park. Here's a short video of the sound:
I let the truck sit for a couple hours to cool, then went out to put it on ramps. The transmission made no noise while attempting the first ascension of the ramps (one moved... something something wet pavement). Second attempt it began to make noise, though not bad. Again, no hesitation when going into gear, nor did it really seem to 'struggle' to go up the ramps, just noise.

So my question to you: Does this seem like just a bad torque converter? I'm lead to thinking that because of how it sounds in neutral, and the fact the first thing it lost was lock-up (even with O/D Off, it wouldn't lock in 3rd).

Note that I get no transmission codes, even in the video I provided, the Check Engine light is for the previously mentioned 1, 3, and 5 misfires (from pushing a few high RPMs getting it home, if anyone has a solution for that too, all ears). All local parts stores have torque converters for $100, rather it be that than having to rebuild for 15~X that amount.

Bonus: For people who like saucy pics, and a perfect dash in an old Dodge.
http://imgur.com/a/fpHii

 

Welcome to the club! I recognize that sound well. Yes it is a dead converter, however (ask me how I know), the lockup clutch material/dust scattered through the front pump and packed up around the solenoid pack in the valve body, not allowing the 3rd and OD solenoids to do their thing. I'm actually surprised you're not getting a manure pile of codes, but maybe because it's the earlier computer. I also would not doubt if the material got into the band and drums/clutches.

Long story short, you're in for at least dropping the pan, replacing the solenoid pack, and cleaning out the valvebody. Might as well re-torque the bands while you are down there since they're probably a mile out anyways. Then stab a converter on it.

 

It would be my luck the other parts get gummed up as well. pulling the cover, I need to remove the governor pressure sensor and solenoid, and the dual solenoid bracket (I assume 3rd and o/d)? I'm used to a front wheel manual, not a rear wheel automatic. :P Still odd I get no codes from any of them. Valve body should be simple to pull after removing the governor sensor/solenoid correct?

 

No idea. I let shops figure that out. My trans has been rebuilt 3 times, the 4th and most recent time it died, I lost 4th, then lost 3rd, turned around and went back to work and lost 2nd and 1st, limping it into the parking lot. It's been sitting for 2 years while I do the race truck conversion, I can drive about 600 feet or so then first gear neutralizes.

 

this is the death mine makes

 

Decided it would be best to just get it rebuilt instead, since I don't know the history of the transmission. Found a local shop with a good rep and warranty. Complete rebuild, inside and out, flat priced at $1,850 and a 1 year unlimited mile warranty. That price includes all the labor and parts. To quote the owner of the business "One year, unlimited miles, I don't care if you drive it to Mexico every single day." That's confidence in their work and their employees.

When I dropped the truck off, they even gave me a full walkthrough of their shop, showing me ones they have in-work and their entire process to guarantee they take no shortcuts, no workarounds, full cleaning of all the hard parts, case, etc and full replacement of soft parts, bolts, bearings, and updates to the transmission pump/valve body. Talking with one of their technicians stated anything goes wrong within the warranty, bring it back, they'll rebuild it again on their dime. So maybe this place is trustworthy. Better than another place that's a bigger corporation, which has a 60 DAY warranty on a rebuilt transmission... srsly? And their price starts at $2500+ (average $4400 after everything).

They said 3 day turnaround, if they get it in the shop this evening, I'll have it back by Friday, if not, Monday (no weekends). I'll update after I get the truck back to let you know how it goes.

Edit: Fun note, my truck tried to act like a child going to the doctor. Starting out, shifted fine for ~half mile. Then it dropped to first, throwing a fit. About a half mile from the transmission shop (2.2 miles total) it quiets down a bit and begins shifting, trying to act like everything's alright.... No, you're going to the doctor, you're not fine.

 

UPDATE! Got the truck back today, dropped off Wednesday near closing time, ready Friday midday, a lot faster than I thought. They had all my old parts laid out on a table for my inspection, including... ALL the hard parts! They literally fully gutted my transmission and rebuilt it with all new parts. It's pretty much a brand new transmission with all the updated heavy duty equipment.

Also while they had the transmission out, they noticed my rear freeze plugs leaking and went ahead and replaced those.... At no additional cost. Replacing soft and hard parts, etc pretty much a new transmission, at the price he told me originally for a simple rebuild. I just have to bring it back in Monday for a PCM flash (for the updates, free) and checkup to ensure their work is good, then I've got a 1 year, unlimited mile warranty.

 

ok, now you have me fishy at PCM flash. That was cool of them though, to do the rear freeze plugs!

So how bad was yours? any real diagnosis?

 

The PCM flash (since it has no TCM, shifts are PCM controlled) is mainly to account for the difference in pressure for the solenoids. The new valve body update has beefier springs and larger ports to allow more fluid flow and pressure. The flash will ensure the transmission shifts accordingly to the new flow. Driving it home, the O/D Off light and Trans Temp light were on for about 3 miles until the PCM learned a bit about the new rebuild (both lights turned off and O/D kicked in afterwards, along with lockup). After the flash, it'll have all the proper parameters. Although, I never felt it shift... I just saw the RPMs drop with each shift. When I picked it up, the entire shop was heading out to the races for some extra cash.

Main issue was as I suspected, torque converter kaboom, sent debris through the transmission. Other issues included things that only the teardown revealed. Bushings in the planetary gears were demolished and making two gears in each set overheat (the gears and plate holding them were rainbowed from overheating, one bad, the other starting), which also caused the intermediate shaft to overheat (rainbowing and worn patches on the intermediate shaft). The overdrive unit was also burned up, if the torque converter hadn't gone, the overdrive would have dropped soon enough (which I've heard is usually the first to go on dodge transmissions).

https://i.imgur.com/aXnoEQk.jpg Here's a picture of the table with the parts from my transmission, you can see the rainbowing of the planetaries, shaft, and debris in the sleeves. You can also see how black the clutch plates are from burning up. Previous owner was obviously unkind to this transmission and ran it low on fluid (was half a quart low when I bought it, maybe due to the ever present dodge trans cooler hose coupling leak, is there one that doesn't leak here?). So me deciding on a rebuild was the best choice on this particular transmission. At least I'm still cheaper on a private sale then the same with more miles from a lot. Srsly, a local lot had a 1998 Silverado with 230,000 miles "As-is" no warranty for $6,000. I have less than that spent with a practically new transmission on 160k (Purchase price + Tune-up + 2 tires + transmission rebuild = about $5k in thusfar). Cheapest Dakota they had was an '01 with 175k for $8k, but advertised "top-end rebuild" in the listing...

 

wow, you definitely got out lucky! I bet mine looks just as colorful.