1999 Blazer trans. issue

Hi, was wondering if anyone might know what I should do for a transmission that had a intermittant 1-2 shift sensor code (only on in cold weather), had a stiff shift from 1 to 2. I did some around town running and now the trans has decided to NOT start off in 1st gear but start off in second and go through all of the other gears with no problems, but the trans oil now has a funky odor. The oil is still a clean shade of red and full when hot. The trans was serviced about 1600 miles ago. The truck is a 4x4 and if I am looking at a re-build or replacement I know it is going to hurt. Any ideas?
Can I drive this thing to work on the highway (10 miles round trip)?
I appreciate the assistance.

Harsh 1-2 shift could be the valve is sticking in the valve body or an intermittent 1-2 shift solenoid or a poor connection at it. If you manually shift it will it hit all of the gears? If you put the gearshift in "1" it will stay in first until you manually shift to "2" and it will remain there until you manually shift to "3". If you put the gearshift in "2", it will start out, (from a stop) in second gear and stay there until you shift to "3". "D" will allow the torque converter to lock up at cruising speeds.

I manually shifted the gears between 1,2 & 3. shifted from 2 to 3 ok, but still drove sluggishly when placed into 1st. I drove it to the trans. shop this morning and discovered it won't shift from 3rd to OD. I will post the trans. shop's anaylisis when I get it.

Got the truck back from the shop, they checked the codes and it was the solenoids. They replaced them and truck drives again. I was also advised that the torque converter was not locking up completely and I would eventually need to re-build the trans. and this was the reason why I was getting a stiff shift from 1 to 2 because the computer was increasing the pressure to compensate. I guess once I get my taxes done I will fork out the $1400 to have it done. I tossed in a bottle of Lucas Oil Trans. Fix to maybe prolong the process some. Any comments or ideas?

I would get a second opinion on the torque converter. Lockup is also controlled by a solenoid, it's either on or off. You might just have another faulty solenoid.