98 OB auto transmission downshift 2 gears = neutral

Hi,
I recently purchased 98 OB and drove it 2000 mi on a trip. One problem, which I knew about and was compensated for, is that when the auto
transmission drops a couple of gears on a hill or when u floor it, the engine races like its in neutral until the gear catches. It spent the day b4 I left in the subaru dealership and they came up with a few guesses as to what it could be but basically new transmission seemed to be order of the day. As it seems to work fine otherwise the guy I bought it off said why dont u drive it until its totally pooched. If it only drops 1 gear it seems fine! Anyway when I got home I checked the tranny dipstick and fluid seemed bubbly on it hot and when I checked it later cold the fluid level is up over the hot mark. I took a pint or 2 out of the tranny, doesn't look like there's coolant or water in it but it never drops the level. Right at the end of the trip the heat gauge showed the radiator in the red H and I had smelt the coolant dump just b4 looking at the gauge yet when I got out, there wa little steam and I could undo the cap with my bare hand!! The fluid level in the radiator seems fine now.
So the ?'s are: Why only a problem when downshifts 2 not 1 gear? Why would the tranny fluid be over the hot mark when cold and I've taken lots out? Why would cooling system dump whatever fluid in it yet be fine later?
new guy on block thanks
Glenn
ps: have read much on what people have said about checking when cold so Ill c what the level is hot now. may be it needs mucho more but u would have thought that's the 1st place the dealer would have went!!
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Seems like you've got 2 different problems. First the gauge showing o'heat when the coolant you say is not hot or even pressurized in the system and remains full, that sounds like a misreading gauge except you say that you checked it after a long drive which sounds impossible since even an engine running too cold would still get very warm to the touch. In any event you may have both a stuck open thermostat and a faulty reading gauge circuit. As for the trans it sounds like you are getting a slip condition which has probably been caused by a low pressure issue of the pump but by now has damaged the trans internally and replacing the trans with a reman from Subaru would be the best choice. By the way your trans slip and your o'heat could be related but would normally show as an actual hot condition not just a gauge showing hot and coolant being cool which you seem to describe.

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