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Bad engine mounts will cause a 'clunk' when shifting to D or R, but have nothing to do with gear engagement. It does sound like the torque converter and an ATF flush will probably not do much for you - but always worth a try.
Personally, I wouldn't pull the engine to repl the tranny. But I would pull the flywheel to replace the rear main seal when the tranny is out.
Use a reputable junk yard for a used tranny. There are mods to make, but you can use up to 1998 trannies...
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My back feels better when I sit in a Volvo seat
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