4L60E's are notorious for failure at the most in-opportune times. Some go forever, some die just outside of warranty.
Look at all of the revisions, look at all of the software cheats GM installed into the TCM/ECM to keep em alive.
I've got two under my care, one in a '03 Safari AWD and one in a '03 Sonoma. The Safari has almost 280,000km on it, and the tranny is still solid, the Sonoma is close to 60,000km, and it's tranny has issues.
I've got the Maxlife Dex/Merc in two Sunfires along with(290,000km and 320,000km) both are 2.2L with the 4T40E. Both multiple changes, both have their ATF cooling lines replaced. No problems from them shifting or doing their thing.
In all honesty, from what it sounds like, it sounds like your 4L60E got bit by any of the very numerous hard faults that can bite a transmission, and cause a massive failure.
-> Now let's have a logical look at this problem:
You experienced a 3/4 failure, burned the band because of a lack of pressure, but retained 1st and 2nd gears.
In my opinion, it sounds like the piston that applies pressure to the band for 3rd/4th let go, which caused the band to slip(the bands in these trans are very sensitive to pressure or lack there of), and that's why the fluid burned.
Here is a Sonnax PDF for their replacement/upgraded part:
http://www.sonnax.com/system/announcement/77998-03K.pdf
Quote:
In GM 4L60-E, 4L65-E and 4L70-E units it is common to have poor shift quality, burnt
bands or clutches due to accumulator piston wear. Repeated reciprocation of the accumulator
piston causes wear at the piston pin bore interface. After this wear reaches a critical point,
fluid loss through the piston pin bore cannot be compensated due to lack of pump volume.
In addition, the piston can get cocked and gall the accumulator bore due to the pin bore wear
or the spring bottoming out. To prevent these conditions in the 1-2 or 3-4 accumulator bores,
Sonnax offers pinless accumulator piston kit 77998-03K.
Here's a link to the other Sonnax parts for your 4L60-E:
http://www.sonnax.com/product-lines/tran...duct_line=trans
It really, does not sound like a fluid caused this failure. So I'm not sure what to tell you beyond, research any of the numerous shift improver kits that are available for these transmissions, and install the one that you like the best on your transmission.