Transmission - do I need to replace?

My car has 93,000 miles, and recently the Check Engine light has been coming on. It gives diagnostic codes of torque converter control circuit (P0740), and lock-up malfunction (38). I had the car at a transmission shop yesterday and the guy said the torque converter is dead and recommended rebuilding the transmission ($2000). He said he could replace just the torque converter ($700) but has no idea how long before something else in the transmission would fail. I called another transmission shop, which a car-savvy friend at work said is "the best", and they quoted $2800-$3500 depending how many parts need replacing. They would also charge $150 just to look at the car (like if I wanted a second opinion). A dealership quoted $4000 for a reconditioned transmission.

First of all, I don't know much about transmissions, so does this diagnosis make sense? (And what IS a torque converter...) Do I really need a complete transmission rebuild? Would I truly be asking for trouble if I only replaced the torque converter?

Very importantly, I feel scared to drive my car as it is now, I feel like it's going to die at any time-- is that a rational fear?

Also, how much should a transmission rebuild cost? Is the $2000 price too low that I should suspect that place? Thank you all in advance!

I find you usually get what you pay for. Check the guarantee. How long after the job is done. The first one sounds reasonable. They are telling you the trany could fail tomarrow.