Hi Anthony,
Wow, that does sound odd. The diverter flap, from what I understand, allows a different airflow path through the internal coils. I'm not sure what the exact function is. I do know that if your center vent pod is dead, you can switch the signal to the diverter pod (if it's good) and get air out the center vents, otherwise your AC operation is poor with no center vent airflow. The side vents are fully open at all times with no flaps controlling them. If airflow is poor there, you either have a blockage, or the end vane piece (what you angle & adjust with your fingers) is not installed into the duct properly.
About the center vent, it will only blow cold air... with the heater on nothing comes out there. When you apply vacuum, you should be able to look through the center vent opening with a flashlight and see the "floor" drop away, revealing the AC evaporator (just barely visible). If you see no movement, your center vent pod is either dead or disconnected internally, or perhaps has a pinched/blocked hose?
Either way, if you plan to keep the car for a long time, I'd yank the dash and change them all. George Murphy sells rebuild kits which claim to work on single & dual chamber, however they do NOT work properly with dual-chamber pods. And the diverter pod is a different size, as is the footwell flap pod(s). That means of all the pods in a 124 dash, his kit works for the center vent pod only! Rather than mess with those, just get new pods for everything. I'm going to be doing my other 300D this winter (one of the 3 cars mentioned originally), and I'll be taking photos this time to document the process...
Regards,