This sounds a lot like the issue I ran into about 4 months after I bought my '98.
I'm trying to recall something that happened in 2004 so bear with me please.
The same thing happened to me one day while driving my Vette:
Message: Service Traction System
Message: Reduced Engine Power
Light: Check Engine (indicator light comes on)
Light: Traction Control (indicator light comes one)
If memory serves, my issue turned out to be a leftover effect of the old C5 leaking battery problem, whereas battery acid had seeped into the area behind the passenger side front tire fenderwall and was playing havoc with... I think it was the PCM and Tac module - maybe even the wiring harness.
Does that sound right, Paul?
My mechanic pulled the fenderwall, neutralized the entire area with baking soda, then cleaned everything as much as possible. He then coated everything with some type of plastic sealer to prevent further corrosion and I've not had any more problems with it (knock on wood).
And I took it to this mechanic for a second opinion after the dealership told me I needed to REPLACE the PCM and wiring harness to the tune of about $3400.
Like I said, this happened over 3 years ago and I didn't have any knowledge about pulling codes and such.
This may or may not relate to your issue but I thought I'd throw it in for discussion.
Good luck with it.
BTW - there is a thread here with detailed instructions on pulling codes on your C5 and a link to a source where one can look up the various codes.
Pulling Codes on a C5

Jane Ann