I am not sure if they are related, but the OD could be a simple repair. The price he quoted you is a little over the top, but then again, I don't know if you went to the stealer or some monkey-with-a-wrench!
Does the overdrive-off light stay on? I betcha he never even diagnosed the relay. You have to have a good relay to rule this out...did he do really do this check? I had the same problem in my 240, which turned out to be the relay. the solder connections had some crack in it. All I had to do wa reflow some new solder on all connections. Took care of the problem.
If I were you, i would pull the relay out. Pull the glove compartment out and the relay is located to the left of it (white in color). Pry open the plastic case and carefully inspect all the solder joints. Any crack should be re-soldered.
If the relay isn't it, it's most probably the OD solenoid, which is probably sticking. I am not exactly sure how to repair it, but Bentley manual outlines this procedure very well.
When was the last time you flushed the ATF? This should be done every 20k miles. However, ATF issues would affect the trans in low gears than high.
The AW70/71 transmissions are one of the best out there, even more solid than what BMW offered during the same time frame (ZF-4HP22). I would srongly doubt the trans is shot!
Good luck,
SM
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90 BMW 325is, 98 BMW 528i, 90 Volvo 240DL
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