Hrm.. bad speed sensor? Think it works by comparing front wheels to the rear. If it exceeds a set tolerance, it will turn on the traction control. If it really exceeds that limit, it will lock it into snow mode until you press the Trac button to turn off and reset it.
This is what people bitch about when they get excessive wheelspin when pulling across lanes of traffic and the snow mode kicks in and the car is powerless in oncoming traffic.
As for the fault, have you pulled any fault codes?
You activate the engine check codes by placing a small length of copper wire between TE1 and E1 in the engine diagnostic circuit box. There are actually 2 boxes that contain these circuits and you can use either one. One is in the engine bay near the throttle body and the other is under the drivers footwell at around knee height.
You read the diagnostic codes on the engine check light which is to the right of the drivers steering wheel (RH drive vechicles) at the level of the top of the steering wheel. For example, if you have a code 31, it will blink 3 times then 1 time, pause then repeat. If you have more then one code, then it will display them all in order and then continue to repeat them.
Codes - http://mkiv.supras.org.nz/articles/engine_1.htm
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I will have a look at my old notes when I was troubleshooting my Trac fault last year. There might be some more info about diagnosing the TRAC system in particular.