You might actually have two problems going on here. The flashing lights on the trans mode buttons is still probably from the PNP switch still, there is a tool that sometimes might be needed to adjust the position of the switch. It could be getting hot and the expansion is just enough to knock it of its setting. Without the special tool just loosen it and move it just a little at a time.
The code 311 VSS signal you have, I don't think is related. The sensor your post refers to is the RPM sensor that is located on top of the bell housing. The sensor for the speed come through the speedometer in the dash. I would first try before you do any replacement of parts is clean and tighten the connectors on the driver side of the transmission, very prone for faults. If that does not do the trick, try cleaning the big connector on the driverside front wheel hump, the one under the black plastic cover. If still is giving you fits then try cleaning and tightening the connector in the back of the instrument cluster.
Connector corrosion is a constant battle for me, it seems that when ever I get a code the connection is the fault not the sensor, maybe 75% of the time.
Let us know how things work out for you.
DanR 94 964 259,000 miles (25,000 on the new engine)
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DanR
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