You may also want to try and bleed it before taking any major action, it sounds like you might have a buble foating around, that could also be the case, althogh if the pedal doesn't feel mushy, it might be a little less likely. Unfortunately Trey does sound right it does sound like something like a broken disc. try everything simple first, then if all else fails, drop the tranny and check it out.

Good luck<
Aj