Hi, i had the same problem on my 98 mondeo,the heator would only work on no3,it was the rheostat which is located at the back of the fusebox inside the glovebox,it will be melted to the wires so you will have to cut them and put new connectors on,easy to do and the rheostat should cost no more than a fiver,this problem has been alledgedly known to cause fires!!!!! i hope this helps (im not sure about the valve)
Wayne, December 2004