Here's are two web sites that describe what a Schmore's node is.
http://www.chiroweb.com/archives/09/19/16.html
http://www.bonatiinstitute-glossary....ls-nodes.shtml
If you do a web search, you'll find more information.
Grade 3 is termed "moderate" disk degeneration.
Your MRI report overall doesn't sound too bad. The bones appear to be in good shape, so if your pain is from the disk, it may be possible that a 1 level disk replacement would help you. But before you try something as dramatic as that, look into what doctor's call "conservative" care. The epidural you mention would fall under that category. You might also consider going to a chiropractor for some massage or ultrasound treatment.
If you read chirogeek's web page (
http://www.chirogeek.com), there's info on how you can get pain from annular tears, even without nerve impingement. The epidural steroid treatment may very well help you.
The process of disk degeneration can cause pain. I have a friend who had degenerative disk disease, and they treated him with a procedure called IDET, which essentially cooks the disks, and accelerates the degeneration process, which then relieves the pain associated with degeneration. He wore a brace for a few months, and he's much better now.
Good luck,
Kay