Burt subaru told me it is definetly the transmission. They are going to tear into it tomorrow and diagnose the problem. They are not sure if it will be covered under warranty or not, I will find that out tommorrow. From the looks of it, the legacy won't be making it to the meet, dang.
bskey: If it is not covered under warranty, I might look for a used SI 6 speed, since it will be about the same cost as a rebuilt 5 speed. I need to do some research in that area though.