Actually, you right. It is the resistor unit. On a 97 TJ, it's located just to the right of the evaporator. There's this thingie with 2 screws holding it on and an alectrical plug going to it. Most of the time, passengers kick the plug accidentally and cause a loose connection in one of the wires. On my TJ, setting 3 didnt work. If I wriggled the wires, it cured the problem temporarily.
What I actually needed to do was to remove the resistor unit and clean it out. It gets clogged with dirt and rust. Give it a thorough cleaning, and it should be fine.
-Oliver
97 TJ