Where is the overdrive sensor located on the V-6 4.0 SOHC?

Without knowing if there are shift issues, it's difficult to know for sure. There isn't a overdrive sensor per say. The flashing light is diagnosed by pulling trouble codes from the PCM (powertrain control module) Most of those I recall were due to band failure internally. I would advise the issue be properly diagnosed though given it could result in considerable expense if wrong. If the transmission seems to be soft, mushy or lazy in it's shift patterns or very abrupt especially 1-2 and 3-4 up or down, it also points to a overdrive band problem or similar.

I had the same problem with my '99 Exploder. My OD light was flashing and the truck was pausing and bucking while shifting. I purchased transmission valve body with a bonded gasket & updated separator plate from ebay, COST=$125. I took that valve body setup to a independent transmission shop and had them install the ebay valve body setup COST=$200. I did this over 50K miles ago and have not had a single tranny problem with my Exploder since. It runs better than the day I bought it used with 59K miles on it. It took me several weeks and scouring 6 ford repair websites to determine the plan of action best for me. Most folks suggest rebuilding the tranny which runs thousands of dollars, my research allowed me to fix the problem for just over $350 including new tranny fluid also. The original gaskets Ford used on the transmission valve body deteriorate more easily than they should casuing this problem according to my research.