Doesn't this instile confidence in the hvac trade ? A limit switch wholesales for $20,you do the math.
The red flame in center "MIGHT'' be indication of hole in exchanger but who knows without watching it and checking farthur.
Very few heat exchanger cracks are visiable ,and that usualy requires a mirror. Most bad exchangers is only known to be cracked following tests.
With all that said,your furnace is overdue for replacment,I'm just not sure either of those guys are the ones I would have replacing it. Depending of several considerations,you might think about the cooling side while you are at it.

Did you have the limit switch replaced for $685? If not then how did you get the furnace to fire up?

The furnace may or may not have a cracked heat exchanger. In either case, it doesn't make sense to invest a lot of money in a 28 year old furnace.

The furnaces you have been quoted are basic builder's models and are bigger than your current furnace. If you have the funds, my recommendation would be to upgrade to a variable speed furnace and consider getting a 95%+ efficiency model of the proper size for your house and climate.

The furnace still works even without any repairs being made. That's why we are a bit miffed AND confused. We are trying to figure out what to do because of what one guy said, which is that the cracked heat exchanger runs the risk of leaking increased amounts of carbon monoxide into our home. We have a carbon monoxide detector installed on the main level (furnace is in the basement).

Another thing to consider is that we are moving out of this house and putting it up for rent. We want the most cost effective furnace replacement if we are going to go that route.

Mike: is that variable speed furnace with 95%+ efficiency the most cost effective option, even for a rental property? Or should we go with the basic builder's model?

Klem1: we are definitely going to get an eval done of the cooling side if necessary, thanks!

You didn't ask for tax advice but it's free also. Ask your tax advisor or reserch advisability of replacing it after converting to rental property.

The answer to your question about buying a 95% efficient furnace would depend on who is paying for the fuel. If the tenant is paying, then you may not want to spend the extra money. However a lower heating cost may be a selling feature when trying to attract a tenant or future resale value.

I would avoid the basic builder model. Spend a little extra on a better furnace even if it is an 80% efficiency model.