The 170k miles doesn't mean squat if it's been taken care of it's entire life. I've got 2 of these transmissions, one at 350k, the other at 205k miles, fluid in both comes out nice, cherry red.
Sounds to me like the shop definitely didn't do the service, that much is obvious. 2ndly, sounds as if the current fluid, with or without the service being performed, was left in WAY too long past it's prime.
Only thing I can suggest is for you guys to do the service yourself, ie. drop the pan, change the filter, add 6qts of new Castrol Import ATF and see if it helps.
STOP driving it, don't even turn the engine over until this has been done or you'll keep sucking crap through everything.
I preach and preach on here that owners need to do yearly drain/refills on these beasts, or at least every 15k miles if it tows, does mountain driving or is a daily driver; if it's a vehicle that doesn't see a lot of heavy use, then a drain every 20k miles is good....do NOT go past this interval!
'97 Rodeo 3.2L V6
16x8 MB Wheels; 32x11R16 GY Duratrac M/T
KC Fogs; Brushguard;