Have you modified wiring lately? Think back over your recent projects to consider whether any wiring mods could have interrupted power or signal wiring to or from any AP components. Start by tracing any recent wiring changes to see if AP components could have been affected. If there were no recent changes or none that are relevant, move on.
I looked up the AP300DL and see that's the AP display screen, or the AP user interface to the brains of the system, usually an autopilot controller or autopilot computer/junction box. The other parts of the AP system, including the user interface(s), rudder position and heading sensors, and possibly NMEA/Robnet connections to the chartplotter and other components, are typically connected to the AP Computer/Junction Box. For example, my AP system of similar vintage has the Simrad Robertson J300X AP Computer Junction Box.
In your system, the AP300DL AP user interface is reporting what the AP computer is telling it. The AP Computer/Junction Box is usually installed under an inside helm, possibly the outdoor helm if that's the only helm with an AP. I recommend you locate it. It may look like
this. After you find the box, find a manual for it online to help with understanding what can go wrong.
The heading sensor is typically not the weak link in the system, but anything can fail at any time. I don't know how to test a heading sensor, but you might search for the manual for yours and follow any troubleshooting guidance it offers. At a minimum, check the power to the heading sensor, possibly provided by the AP computer/junction box, sometimes fused. Check the heading sensor connections in your computer/junction box and power to the heading sensor. Check for a fuse at the heading sensor.
If you can determine that the heading sensor is okay or not the most likely suspect, then the next most likely failure is in the AP computer/junction box. If you found a manual for yours, it may have a troubleshooting chart.
In my experience, the AP Computer/Junction Boxes go bad without warning. They'll work fine one day or for entire seasons, and the next day or season, they don't. You shouldn't have to replace your entire system. Investigate the availability and cost of replacement parts and decide whether keeping the vintage system functional by replacing legacy parts is economically more attractive than buying a whole new system. Replacement parts can usually be found on eBay or at marine recycle places like The Boaters Resale Shop of Texas.
Let us know what you find out as you discover the parts in your system and troubleshoot.
Greg.