I've towed all over with heavy azz boats (5000+) and can talk about highway towing all day. OD-off essentially keeps you from having to monitor the final drive ratio being used or not.
So if you want to make the best mileage possible while towing (and you are dilligent), leave OD on and monitor the terrian for the need to turn OD off when the speed you are doing drops due to terrain changes. "Monitoring" means turn off OD before the uphill portion and put it back on for the down hill and leave on for level terrain.
The problem with this is that you need to have a LOT of time with towing the load of the same weight and carefully observe the tach for when it "slips" from final drive or actually changes gear from final drive. When it slips from final drive you'll know it when the RPMs increase by about 500 ...but there was no gear change. Once terrian levels back out, the rpm drops right back to where you were.
It's correct operation but it builds up heat when it has to slip (read shear fluid and increase pressure) in order to maintain speed. If you leave OD on, no matter the terrain, the trans will do this all day for you and get hotter than it needs to.
The alternative to constantly monitoring the terrian for when the trans needs more gear is to turn OD off & leave it off. It does sacrifice MPg on the level but the trans is not going to have to slip or even downshift to maintain speed. The engine is fine to run all day at 3K as long as all else is happy and maintained.
What you should do? If you tow the same load over the same terrian often, you'll know when to turn off OD and when you can leave it on. If driving is mixed (highway/city) leave it off. For example on the way to the lake, I know the path and the terrain, so the 15 mile highway portion has only two areas that I need to turn OD off until it levels out. The rest, I leave it on till I exit.
If I don't know the terrain, i leave it on for level portions that I can see are level, then off for traffic and inclines.
If you leave OD on and fail to realize a hill is coming and it slips to maintain speed or even downshifts you're not going to kill it but the more you fail to realize and are not dilligent, the more life you're sacrificing from the trans.
'04 Freedom Edition HO & '04 Overland HO (previous '00 Laredo 4.7)