Dionysius,

Read through your post about testing the modulator valve pressure. My experience is with the 722.315 and later transmissions, but your sounds very similar.

When making the adjustments with the T handle, the gauge movements are very smooth. Based on your description, this was not your experience...

This leads me to think you have a bad modulator valve. Perhaps, as Alastair suggested, it was installed incorrectly.

Either way, if it were me, id buy a new modulator valve (and modulator valve seal), and re-install and re-test. If you get the same results, then maybe your test fixture is faulty, or something is going on in the valve-body of the transmission (I have no experience going in deeper to one of these things)

I ran all over making vacuum adjustments on my fix. But it wasn't until I got my modulator pressure right that the vacuum adjustments worked like they were supposed to.

Good luck, its frustrating...but gratifying if you are able to bring back one of these transmissions back 'from the dead'.

dd

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'85 300D, 'Lance',250k, ... winter beater (100k on franken-Frybrid 3 Valve Kit)
'82 300D, 'Tex', 228k body / 170k engine ... summer car
'83 300TD Cali Wagon 210k, wife's car