Well, I changed the fluid (appreciate the advice Spiderman, but I had already purchased the fluid) to Redline synthetic and the filter. Sort of messy as the pan drain plug was so tight it stripped out the allen (yep, right size, etc. Must have been worn.) So I dropped the pan and drained into a tub. Only about quart or so was in the tub, then the wind caught the cardboard I had placed under the tub to protect the driveway and flipped the tub and tranny fluid ALL over. So much for keeping it off the driveway <g>. Got the correct socket to rotate the crank to expose the torque converter. That drain plug was also extremely tight, had to use the old "combo wrench on an allen key for extra leverage" trick to get it out. About a gallon came out.
The fluid was brown, smelled ok, but I don't know what burnt fluid smells like, but there were a lot of residue patches in the pan. About 5 the size of a dime, push on them and it was silvery, slightly granular muck. Also, sections about 6 mm in diameter of what looks like friction material. Probably not what is supposed to be in there!
It's all back together and shifts no worse, and possibly a little better than before, but given what I saw, it's time to start interviewing transmission mechanics. Kind of tough to put $1700 plus into a $6000 car though (but the A/C is ice cold). We'll see.
Thanks for all the help and advice, it was greatly appreciated!!
'88 300E 265K
'91 300TE 155K