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The flashing light indicates that the PCM has seen something it doesnt like and has probably set a code. You should get it checked for codes. Your best bet is your local Ford dealer but apparently AutoZone will scan the system for free. If you get a code post it here and someone will be able to tell you what it means. Hopefully your problem is something as simple as the rear ABS sensor or something similar.
How long since the transmission was serviced? Is the oil clean and bright red?
Also, if you don't come up with any codes, reset the codes by either disconnecting the battery or reset it thru the reader. It's not good for the trans to drive it continually with the light flashing. On my 95, the light comes on every couple of months. Each time I pull the codes (nothing indicated) and reset the codes and it's good for another a couple of months. I assume at some point it may get worse and I may need to take further actions.
Thanks for the input. I made an appointment with local ford dealer and they're going to put it on their machine. I'll post what they find so that it may help others.
Well the Ford place said it was internal to tranny. Without pulling it out they couldn't pinpoint exactly what. The O/D light is not flashing now so they must have reset it somehow. I don't know what code they came up with. Thanks again for your input.
In the future, you can reset the codes yourself by disconnecting the battery for about 10 minutes. However, I would recommend you find out what the codes are. You can buy an EECIV reader for about $50, or most Autozones will read the codes for you for free.