Just means the direct clutches are toast, as you suspect. I drove mine with first and second only for over a year before I could afford a rebuild. Further damage is unlikely, as you aren't using the failed clutch if you put it in L2. I wouldn't try to run 60mph in second, but I puttered back and forth to work at around 45mph max for that long. Point being that you aren't going to hurt the trans any worse than it already is if you don't use the failed clutch. Hard parts damage, as previously mentioned, is a different story altogether. When that occurs, you're just grinding metal and sending it through all the other potentially good portions of the transmission. Very bad indeed.
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