I still have my G25, and it's been working fine for nearly 4 years now. I have always been very gentle with the shifter. However, I have heard of problems like you are describing, and here is what I've heard from other sim racers:
Your shifter most likely has a broken wire inside the device. One reason the G27 does not have the H/Sequential option is the delicacy of the wiring inside the shifter required on the G25. It is possible, from normal use (but a bit firm on the shifts) to stretch, damage or break some wires. This can cause the loss of 3rd gear or sequential operation.
As I understand it, the G25 shifter is really a 'gated' joystick, as far as the computer is concerned. It might be possible to get inside the shifter (no harm in that now, since your warranty is expired and the shifter isn't working) and look for broken wires that could be re-soldered.
I cannot guarantee this is what you're experienceing, but it could be one explanation. If you can't repair it, and you really want a sequential shifter, I can tell you that my Fanatec PWTS wheel with sequential shifter has been working fine for 18 months now. That might be your only option for a sequential shifter at this point.
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Chunx