99EURO, I think that is a 5R55E (5 speed auto), so fourth gear has the following clutches and bands applied in the OD shifter position (not P, N, D, 2, 1, but the solid D):
1) Overdrive one-way clutch is holding (as it is in every gear except 5th)
2) Reverse/High clutch pack is engaged (as it is in 4th, 5th, and R)
3) Forward clutch pack is engaged (as it is in every gear except R)
What I'm trying to say is that there isn't one set of clutches that work ONLY in fourth gear, so I would expect that you could make it shudder in another gear as well. #1 usually won't cause a shudder, but a failing #2 or #3 could/would cause a shudder. If it shudders in 5th gear and maybe reverse as well, you could narrow it down to #2, where if you could get it to shudder in the other gears you could narrow it down to the forward clutch pack.
The blinking OD light is a signal that there is a trouble code set (which the dealer has read), and 'incorrect' or 'wrong ratio' means that something is slipping that shouldn't be (wrong output-to-input ratio). There are a couple of things that could cause that to happen: either the clutches aren't being given enough pressure to hold the clutch plates together (possibly a control system problem, maybe a failing/plugged solenoid valve), or the clutch plates in at least one of the two clutch packs mentioned (#2 or #3) are out of friction material and are rubbing metal-to-metal (which has less friction, and therefore holding force).
A dealership will usually want to replace the unit with a remanufactured or new unit because they warantee their work, and replacing a $100 valve might solve the problem for now, but since there is shuddering and slipping, they can't take the chance that enough damage has been done to the clutch packs for them to fail before the warantee period is up (and ends up back on their doorstep on their dime).
How many miles are on it?