Fellow Jeepers, here's the story.
My names Anthony from Miami. I ride a Harley, and my DD is a 2012 Kia Rio. Just got the wife a 2018 Jeep Compass Latitude. Had a 95 YJ, loved that thing but had to let it go a few years back as it wasn't fit for my nearly 100 mile daily commute to work.
Pops had a 2001 Cherokee XJ Sport, 2WD. Transmission seems to be out for the count at this point, or is it?
Jeep starts up great, motor sounds and drives real strong; when you first get going though, 1st and 2nd gear grind like all hell, but once it shifts into 3rd, the rest is as smooth as can be from there.
My pops decided to sell since he needs a commuter to work and could not afford the tranny rebuild at this point, instead, gave him a 2005 dodge neon I had and had him give me the XJ (kind of want to keep this baby in the family).
My question is the following, although I am almost certain it does, does this tranny need to be rebuilt or may it be something im missing and you XJ gurus may chime in with?
My plan at this point is get the rebuild done when I have some extra green, throw some 31's on it, and use it as a toy and on rainy days down here in south florida, unless any of you would convince me its not a smart move?
Last thing I want to do is sell this thing for parts, doesn't seem like a way ANY Jeep should go out.
215K miles on the odometer BTW.
I am attaching a couple pics I snapped so you have a visual more or less of what I have on my hands.

 

3rd and 4th (overdrive) activate the torque convertor lock-up clutch (forces both halves of the convertor to spin together as one unit). While 1st and 2nd do not. Perhaps it is just a failing/failed torque converter?

Does reverse also grind?

 

Yes, the few times ive run the Jeep since ive had it, reverse also seems to grind a bit and sometimes will fail to engage right away as well, although does eventually.

 

Grinding = rebuild.

There are a lot of transmission problems that can be cured without a rebuild. Grinding gears ain't on that list.

You could always shop Craigslist (or this site) for a good used trans.