I'm no trans doctor, but yeah, that doesn't sound promising. It sounds like first gear didn't engage properly and the computer saw the clutches slipping, which made it lock into third gear (limp home mode) to prevent further damage. The flashing light when you restart it is indeed trying to tell you something. I had a look at the '03 manual (haven't bothered to download the '04, I assume it's about the same) and the instructions for how to read the flashes without special tools begins on AT-48 (the actual codes are on AT-52). The manual shows a stupid little dance you can do to run the test at any time, but unless it's an electrical issue, you may have to replicate the problem to get it to fault, then turn it off/on again to get it to tell you why it's going into limp mode. If that's the case, record the flashing light with your phone, that way you can watch it again and make sure you've got it decoded right. The manual should have some troubleshooting steps for each code to help you track down what's going on. Good luck!
The manual's available here if you haven't gotten it yet.
+1 for checking the fluid level and condition as well. Warm it up, shift through all the gears, then check it.
On a side note, Nissan calls the flashes "judgement flickers." I can't help but think that a judgement flicker must be a small woodpecker that grumbles about how this is all your fault.