I thought I would throw this out there and see if others have had this issue. 98' XK8, 81K miles. Previous owner supposedly had transmission rebuild 7k mile ago. The transmission shifts well up and down in the Drive position. Reverse is a little sloppy, but goes into gear and works fine. If I dare manually select gears "2-3-4" it immediately goes into the dreaded "limp home" mode, transmission lights come on and it will not change gears, up or down, or go into the Drive position (shifter does, transmission does not). If I stop the car, turn engine off, curse and scream, then restart it and use the car in the automatic mode life is good.

Transmission?
Gear selector?

When they rebuilt the transmission, perhaps they didn't reconnect the gear selector properly. Or something else....

 

The first thing I would do is check the transmission fluid level. Often times when the fluid is drained it will develop air pockets inside when it is refilled. This is why most transmission shops ask you to come back to check the level again. If that is ok then look at the shifter cable adjustment. I will attach the TSB covering how to make the adjustments.

Link to shifter cable adjustment http://www.jagrepair.com/images/TSB/307-01-1.pdf

 

Thank you for the information and the TSB. Is there a reasonable way of checking the transmission fluid level? After looking around it seems like checking the transmission fluid level is a nightmare, even with the dipstick added to the transmission. Given the bit of sloppiness in the gear selector, I might start with that unless there is some way of checking the fluid level without either adding the dipstick or draining the fluid and replacing it. And if I just drained and replaced the fluid, it would seem there is a chance the same bubble situation might repeat itself again.

 

 

Check the shift cable adjustment, it is possibly in between detents.

 

I know this is an old thread but, for future readers, this sounds like the D to 4 microswitch to me. This microswitch is in the shift lever mechanism and should detect movement of the shift lever from D to 4 and 4 to D.