I'd say the bald tires were messing with the TOD system in your case. Those tires in the pic are pretty bad so I would suspect when ever you hit the gas or got on it around a corner this was causing the equivalent of the tires slipping (which they most likely were) causing TOD to kick in.

As far as the hard shifts, If they've smoothed out with the new tires then you're good to go. If the problem persists, I would take more of a look at your fluid levels in the tranny and transfer case.

Did you have your VX inspected by a trust worthy mechanic before purchasing?